The softness in industry sales that began in the latter half of last year has continued into 2006 with inconsistent demand patterns. Recent business conditions have been softer than we anticipated and has caused us to modestly lower our sales projections for 2006.
Jeffrey R. Scheffer, chairman, president and chief executive officer

Stanley Furniture Company today reported record sales for the first quarter of 2006. Sales and earnings were within management's previous guidance provided in late January 2006.

Net sales of $83.5 million increased 0.7% from record first quarter sales in 2005. Earnings per share of $.43 equaled the record earnings in the first quarter of last year.

Operating income declined to $8.6 million, or 10.3% of net sales, in the first quarter of 2006 from $9.4 million, or 11.3% of net sales, in the first quarter of 2005. Lower margins resulted from operational inefficiencies, lower production levels, and higher raw material, compensation and energy costs.

Total inventories of $65.1 million have decreased $4.8 million and $6.6 million since December 31, 2005 and the year- ago quarter, respectively.

"We are pleased to report record sales, solid earnings and exceptionally strong cash flow for the first quarter of 2006," commented Jeffrey R. Scheffer, chairman, president and chief executive officer. "The softness in industry sales that began in the latter half of last year has continued into 2006 with inconsistent demand patterns. Recent business conditions have been softer than we anticipated and has caused us to modestly lower our sales projections for 2006. Recently, we began reinvigorating our continuous improvement efforts using lean manufacturing principles, to improve processes and efficiencies. Near term, as these efforts allow us to continue reducing inventories, we anticipate lower production levels and operating margins. How quickly and to what extent we are able to lower costs, improve quality and reduce inventories is difficult to project, but we are confident this will position the Company to better compete primarily as a domestic manufacturer, execute our strategy and deliver value," concluded Scheffer.