According to Kathwari's own words ... fiscal Q1 2006 marked a reduction in the company's ability to accurately predict future sales. Kathwari now seems to be using that lack of visibility to set up an excuse against the risk of an earnings miss on Monday.

So I said in last week's Foolish forecast, and so it came to pass on Monday. Furniture company Ethan Allen (NYSE:ETH) reported $242.8 million in Q3 2006 sales, and $0.26 per share in profits under generally accepted accounting principles. (Under "pro forma" earnings, results were $0.53 per share, excluding the effects of $0.27 worth of restructuring and impairment charges.) On both counts, Ethan Allen missed Wall Street estimates.

Thus, Ethan Allen has finally joined peer furniture companies like Basset Furniture (NASDAQ:BSET), Furniture Brands (NYSE:FBN), Hooker (NASDAQ:HOFT), and Stanley (NASDAQ:STLY) in the industry's "factory seconds" room. (Surprisingly, Mr. Market proved to be in a forgiving mood, and only docked the stock 2% in response.)

One reason Ethan Allen didn't take much of a hit this week, one suspects, is the stock buyback program mentioned in its earnings release. (Buybacks can support a stock's price while making current owners reluctant to sell -- after all, if the company's buying, the stock has to be a bargain, right?) Nearly 500,000 shares were repurchased during the just-ended quarter, and the company's board of directors has authorized another 2.5 million shares' worth of buybacks.

If implemented in full, that would reduce the firm's share count by nearly 8%. What's more, the firm can implement it in full. Although Ethan Allen carries a good $203 million in long-term debt on its balance sheet, it also boasts nearly $164 million in cash. Funding the entire buyback authorization, at today's share price, would consume barely half Ethan Allen's cache o' cash.

Also encouraging: Kathwari's observation that the tail month of the quarter, September, saw "positive trends" in sales. Because of the oft-repeated mention of Ethan Allen's efforts to reduce delivery times on goods sold, however, Kathwari did caution that the September trends might not be long-lived. In light of that risk, he promised to update investors in a few weeks on how things are playing out. Stay tuned.

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