I suppose it was bound to happen.

Monitoring the nation's furniture makers for a couple of years now, I've done my level best to keep an eye on their earnings release schedules, and pen Foolish Forecasts before each one, to give investors a heads-up on what to expect and, more importantly, what to look out for. But every once in a while, one of these companies will slip under my radar, and report its earnings before I even knew they were on their way. That happened earlier this week, when Stanley Furniture (NASDAQ:STLY) got off a first-quarter 2007 report Tuesday afternoon without my noticing.

My bad.

Well, the cat's out of the bag now, and the stock's already up 5.5% on investors' relief that the news wasn't as bad as feared.

Still, I have to say that this cat looks pretty mangy. A 10% year-over-year slide in sales translated into a 65% decline in earnings per share. Why? "Lower sales and production levels, operating inefficiencies and higher raw material and compensation costs" combined to slice a whopping 620 basis points off of Stanley's operating margins. Simply put, the fewer units of furniture Stanley sells, the greater the burden the company's fixed costs place on each item's profit margin. If you're an investor in any of the other companies in this sector -- Hooker (NASDAQ:HOFT), Furniture Brands (NYSE:FBN), Bassett (NASDAQ:BSET), or Ethan Allen (NYSE:ETH) -- or even in sectors experiencing similar declines in sales -- boatmakers Marine Products (NYSE:MPX) and Brunswick (NYSE:BC) come to mind -- then you'll be familiar with this pattern.

The good news is that Stanley's management doesn't seem to expect these problems to last, or else it wouldn't have dipped into its savings to spend $7.3 million buying back more than a third of a million shares during the quarter. Or issued guidance predicting that sales would stabilize this year, flat against 2006 at somewhere between $300 million and $315 million, and that earnings per share would be down no more than 15%, exclusive of one-time items. In fact, CEO Jeffrey Scheffer came right out and stated that business had "stabilized" in recent months.

"Stable," however, doesn't seem to equal "the same as last year." On the contrary, Stanley predicts another year-over-year decline in sales in Q2 (that's the one we're in now), about a 35% decline in operating profit, and a net loss for the quarter, caused by Stanley taking a charge to terminate its pension plan.

For more on the what's happening in the furniture industry, check out:

Stanley Furniture, Hooker Furniture, and Marine Products are all Motley Fool Hidden Gems newsletter recommendations. Come see how small caps can provide your portfolio some punch by signing up today for your free 30-day trial.

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