Over the last several weeks, furniture industry investors have watched in horror as one cabinetmaker after another reported bad, worse, and worst results. The list of losers reads pretty much like a "who's-who" in the nation's furniture makers, with everyone from Bassett (NASDAQ:BSET) to Ethan Allen (NYSE:ETH), from Hooker (NASDAQ:HOFT) to Stanley (NASDAQ:STLY), reporting a litany of sales shortfalls, plummeting profits, and -- what alliterates with "outlook?" -- er, "ohmygoodnessgraciousme" outlooks.

Last week's Q3 2006 earnings report from Furniture Brands (NYSE:FBN) was no exception, although it may have looked like one at first glance. In the hours following the report's release, Furniture Brands saw its stock rise 3%. But after investors had taken some time to mull the details, they seem to have thought again, shaving 5% off the firm's pre-report share price. What spooked the Street? Let's find out.

As I said, the report wasn't all bad. Sales were up the usual (for this firm) 2%, which was actually better than the Street's sleuths had expected. Profits, in contrast, were just awful, down 41% firmwide, and 37% per share, to $0.12 per diluted share. In fairness, most of the damage was done by "one-time" charges such as restructuring expenses, an increased litigation reserve, and the termination of hedge accounting for an interest rate swap.

So one good number and one bad -- but to be honest, I was interested in neither last week. As I said in my pre-earnings Foolish Forecast, I wanted to see how successful Furniture Brands' plan to "schedule downtime" at several factories would be in reversing the inventory spike we saw last quarter. As it turned out, it wasn't successful -- not by a long shot.

As you'll recall, last quarter, Furniture Brands saw its inventories leap 11% in comparison to just a 1% rise in sales. As already mentioned, Q3 saw one more percentage point of sales gains -- but eight more percentage points of inventories stacked up in Furniture Brands warehouses. A 2% sales improvement is no justification for a 19% rise in inventories, folks. And while it's true that this is just one quarter's results, and that a single metric within a single quarter is not particularly reliable, I also calculated an average of Furniture Brands' sales growth and its inventory growth over the last six months. Result: sales grew just 1.6%, but inventories exploded -- growing 15% year over year.

Last week, I wrote: "Having both recognized and publicized the [inventory] problem, I'll be more than a little surprised if Furniture Brands doesn't bring its inventories right back down to the level of sales growth (or lack thereof) on Wednesday."

Color me surprised.

Read the setup to today's story in two parts:

Actually, one furniture company has turned in a halfway decent quarter -- but it wasn't American. Let Italian sofa-meister Natuzzi (NYSE:NTZ) serve as further evidence that Fools shouldn't be too ethnocentric in their investing. There are plenty of great investment possibilities beyond our own borders, and we aim to find them in the Fool's new international investing newsletter, Motley Fool Global Gains . Try it out for free today!

Hooker and Stanley are both Motley Fool Hidden Gems recommendations.

Fool contributor Rich Smith does not own shares of any company named above.