Ethan Allen Interiors (NYSE:ETH) shareholders can collectively exhale.

The leading producer and retailer of furniture recently reported fiscal fourth-quarter results. Despite a difficult operating environment, what with the turmoil in the housing sector and all, Ethan Allen reported EPS of $0.65, in line with analysts' consensus and just a penny shy of last year's result. The company's shares are up some 8% yesterday on the news.

While net sales decreased 5% in the quarter, management noted a tough comparable in the prior year, which had grown some 12%. Besides, given the difficult operating environment, this Fool was not surprised to see revenue decrease. The analyst community may have been, though, since the company's top line was 3.1% short of consensus expectations, according to Thomson Financial.

Still, the retail division actually grew revenue in the quarter some 1.7%, while the wholesale segment experienced a decline of 8.5%. Ethan Allen's wholesale segment fills the company's own stores as well as others, so I suspect the wholesale group's miss reflects inventory cuts across the industry.

Ethan Allen credited inventory reduction as one factor behind its improving margins. The gross margin expanded 200 basis points over the prior-year period, benefiting from an increased mix of retail revenue, from 68% of sales to roughly 73%. Gross profit also benefited from improved retail operations and margins at the manufacturing level.

The company noted that, in its effort to reduce inventory levels to a more appropriate point for the current operating environment, it had reduced operating hours at its plants to 32 hours from a 40-hour workweek. Its plants are now back operating at the traditional level.

The operating margin still narrowed 100 basis points on the lower sales. However, after an improved tax rate and some $16.9 million of share repurchases, the company managed to satisfy expectations. Furthermore, Ethan Allen's CEO, Farooq Kathwari, bravely stated his view that the company should drive EPS in FY 08 (June) within the range of analysts' expectations. On the conference call, one observant analyst noted the current range of estimates forecasts EPS growth anywhere from 3% to 22% in FY 08. Kathwari humorously noted his understanding of that. He reiterated that the operating environment left much out of his control.

However, management also noted positive trends in July, as well as continued share repurchases. The company also raised its dividend 10% one day ago, implying some level of confidence. This Fool favors Ethan Allen's quality focus and admires its 65% domestic manufacturing and sourcing. Considering its market position, and the fact that it's trading at 13 times FY 08's $2.70 consensus number, this Fool thinks the company compares well to peers Furniture Brands International (NYSE:FBN) and Hooker Furniture (NASDAQ:HOFT), whose shares also increased following Ethan Allen's release.

Further Foolishness:

Hooker Furniture is a Motley Fool Hidden Gems recommendation. Find out how small-cap stocks can pack a big punch for your portfolio by signing up today for a free 30-day trial.

Fool contributor Markos Kaminis has no ownership interest in any of the companies discussed here. However, he could sure use a nice coffee table. The Fool's disclosure policy looks great in any living room.