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Stanley Reports Third Quarter Sales Decline

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Stanley Furniture Company, Inc. reported sales and earnings for the third quarter of 2006. Both sales and earnings were slightly below management's updated guidance range provided in mid September 2006. Third quarter sales and earnings were below the record levels from the year-ago quarter. Net sales of $75.9 million declined 11.3% and earnings per share of $.26 decreased 40.9% from the third quarter of last year. For the first nine months of 2006, net sales of $236.9 million decreased 6.1% from the comparable prior year period. Earnings per share declined 22.9% to $1.01 compared to $1.31 for the first nine months of 2005. Third quarter operating income was $5.0 million, or 6.5% of net sales, compared to $9.4 million, or 11.0% of net sales, in the year ago quarter. Year-to-date operating income declined to $19.9 million, or 8.4% of net sales, from $28.2 million, or 11.2% of net sales in the comparable 2005 period. Lower margins resulted from lower sales, decreased production levels, and higher raw material, compensation and energy costs. As a result of improving processes and reducing lead times, production levels decreased more sharply than the sales decline particularly in the second and third quarters and led to lower margins due to the under absorption of factory overhead costs. Working capital, excluding cash and current maturities of long-term debt, decreased $9.4 million during the nine month period ended September 30, 2006 to $72.1 million from $81.5 million at December 31, 2005. Total inventories of $59.8 million have decreased $10.2 million, or 14.6%, and $13.0 million, or 17.9%, since December 31, 2005 and the year-ago quarter, respectively. Strong cash flow in the first nine months of 2006 along with $7.2 million of cash on hand was used to purchase $28.3 million of the Company's common stock, pay cash dividends of $2.9 million, and reduce debt $1.4 million. The Company currently has $37.9 million authorized by the Board of Directors to repurchase shares of its common stock. At September 30, 2006 total debt outstanding was $10.0 million and cash on hand amounted to $5.4 million. Business Outlook "As previously noted, we believe wooden residential furniture sales are in the midst of an industry wide slow down that is likely to persist for a while," commented Jeffrey R. Scheffer, chairman, president and chief executive officer. "Consequently, accurately projecting sales in this environment is difficult because of the limited visibility due to our quick order fulfillment times. While we are disappointed with the sales decline, we believe it is a result of overall industry conditions. We are very pleased with strong cash flow in the third quarter and year-to-date 2006 that has been accentuated by a significant inventory reduction driven by the initial progress from our lean journey." "Near term we will continue to focus on controlling costs and inventories, and improving our product offerings. Longer term we remain focused on reducing costs, eliminating waste, and improving productivity, quality, and service through our continuous improvement efforts applying lean business principles," concluded Scheffer. Management offers the following guidance. This guidance excludes any potential receipt of funds under the Continued Dumping and Subsidy Offset Act involving tariffs collected by the U.S. government on wooden bedroom furniture imported from China. -Fourth quarter 2006 net sales are expected to be in the range of $ 69 million to $ 71.5 million, ranging from a decrease of 12 % to 15 % over the fourth quarter of 2005. For total year 2006, net sales are expected to be in the range of $ 305.9 million to $ 308.4 million, a decrease of 7.6 % to 8.3 % compared to 2005. -Operating income is expected to be in the range of $ 2.7 million to $3.2 million for the fourth quarter of 2006, or $ 22.6 million to $ 23.1 million for total year 2006. -The Company's effective tax rate is expected to be 34.8% in 2006. -Fourth quarter 2006 earnings per share are expected to be in the range of $.13 to $.16 compared to $.46 per share in the year-ago quarter. For total year 2006, earnings per share are expected to be in the range of $1.15 to $1.18 compared to $1.77 for 2005. Management is currently in the process of planning and budgeting for 2007 and will provide guidance for 2007 at a later time. Other Information All earnings per share amounts are on a diluted basis.Established in 1924, Stanley Furniture Company, Inc. is a leading manufacturer of wood furniture targeted at the upper-medium price range of the residential market. Manufacturing facilities are located in Stanleytown and Martinsville, Va. and Robbinsville and Lexington, N.C. Its common stock is traded on the Nasdaq stock market under the symbol STLY.

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