Thanks to Mr. Market's moodiness, Motley Fool Rule Breakers recommendation iRobot (NASDAQ:IRBT) saw its post-earnings gains pared from 3% to 1% last week. But did the robot maker deserve the share price spike in the first place? That's what we're here to find out. We begin with a few highlights:

  • Revenue growth hit 36% for the quarter, a significant acceleration from last quarter's 3%.
  • Margins continued to deteriorate, however. On a rolling basis, the gross margin from the last 12 months slipped 50 basis points from last quarter to 36%. Operating and net margins both turned from black to red, at negative 0.9% and negative 1%, respectively.
  • The net loss totaled $0.20 per share, one-and-a-half times worse than in last year's Q2, but a sequential contraction from last quarter's $0.23 loss.
  • Management raised guidance for the year to $233 million to $243 million in sales (so we can start the countdown at $86.5 million down, $146.5 million or more to go), and $3 million to $5 million in pretax profit.
  • Assuming iRobot achieves the midpoint of both projected sales and earnings, that will yield a return to positive operating margins (to 7%) -- and a small improvement over the operating margin achieved for full-year 2006. Fingers crossed.

Roomba to zoom?
I admit, the news sounds good, if not exactly Rule Breaker good. It's more of a gradual improvement. And while the company highlighted its deal with TASER (NASDAQ:TASR) in the press release, it made no mention of its similarly high-profile deals with defense companies like Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA). Considering how much the stock price benefited from these news items, I admit I was hoping to hear more.

That said, things may be looking up on the consumer side of the business. CEO Colin Angle mentioned that iRobot is getting ready to introduce "the next generation to its Roomba portfolio," and that "store inventories have been reduced as part of the plan and the company anticipates benefiting from channel fill in the second half of the year." At first, I found this statement confusing -- looking at the balance sheet, it's clear that inventories increased this quarter, not decreased.

But then it hit me -- Angle wasn't talking about iRobot's inventories. He was saying the firm's retailing customers had been selling down their inventories of "last year's model" to make way for the latest edition. He's saying that we should expect Roomba sales to pick up as stores like Sears (NASDAQ:SHLD), Best Buy (NYSE:BBY), and Target (NYSE:TGT) restock to move the new product.

Silly Fool. I should have known that with the stock price rising in the middle of a down market, the news had to have been better than what I took it to be.

What did we expect out of iRobot last quarter, and what did we see when we popped the access hatch? Find out in:

iRobot and TASER are Rule Breakers picks. Break some rules of your own with a 30-day free trial of our growth-stock newsletter. Best Buy is a Stock Advisor recommendation.

Fool contributor Rich Smith owns shares of iRobot. The Fool's disclosure policy believes the robots are our future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.