----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**Form      10-Q**

| **[X]** | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934** |
|---------|------------------------------------------------------------------------------------------------------------------------------------------|

*For      the      quarterly period ended **September 30***
***,      2006***

*or*

| **[                ]** | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE                ACT OF                1934** |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

*for      the      transition period from *
* *
*      to*
* *
*.*

**STANLEY      FURNITURE COMPANY, INC.**

|                                                                         | **Delaware**                                        |   | **54-1272589** |   |
|------------------------------------------------------------------------------|-----------------------------------------------------|--------|----------------|--------|
| (State                or                other jurisdiction of incorporation) | (I.R.S.                Employer Identification No.) |

**1641      Fairystone Park Highway, Stanleytown, Virginia 24168**

**(276)      627-      2000**

**October**
**      13,      2006,**
**11,131,810      **

----

**ITEM        1.****CONSOLIDATED FINANCIAL        STATEMENTS**

**STANLEY        FURNITURE COMPANY, INC.**

|                                                                                                                                                                                  |   | **(unaudited)**                     |        |                                |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|-------------|-------------------------------------|--------|
|                                                                                                                                                                                  |   | **September                  30,**  |        |  December                  31, |   |
|                                                                                                                                                                                  |   | **2006 **                           |        | 2005                                |   |
| **ASSETS**                                                                                                                                                                            |   |                                     |        |                                |   |
| Current                  assets:                                                                                                                                                      |   |                                     |        |                                |   |   |   |
| Cash                                                                                                                                                                                  |   | **$**                                    | **5,400**   |                                | $      | 12,556 |   |
| Accounts                  receivable, less allowances of $2,502 and $1,566                                                                                                            |   |                                     | **38,271**  |                                |   | 36,957 |   |
| Inventories:                                                                                                                                                                          |   |                                     |        |                                |   |   |   |
|  Finished                  goods                                                                                                                                                 |   |                                     | **45,491**  |                                |   | 52,609 |   |
|                    Work-in-process                                                                                                                                               |   |                                     | **5,453**   |                                |   | 7,609 |   |
|   Raw                  materials                                                                                                                                            |   |                                     | **8,822**   |                                |   | 9,743 |   |
|       Total                  inventories                                                                                                                |   |                                     | **59,766**  |                                |   | 69,961 |   |
|                                                                                                                                                                                  |   |                                     |        |                                |   |   |   |
| Prepaid                  expenses and other current assets                                                                                                                       |   |                                     | **1,759**   |                                |   | 1,435 |   |
| Deferred                  income taxes                                                                                                                                                |   |                                     | **2,442**   |                                |   | 2,462 |   |
| Total                  current                  assets                                                                                                                                |   |                                     | **107,638** |                                |   | 123,371 |   |
|                                                                                                                                                                                  |   |                                     |        |                                |   |   |   |
| Property,                  plant and equipment, net                                                                                                                                   |   |                                     | **48,438**  |                                |   | 50,744 |   |
| Goodwill                                                                                                                                                                              |   |                                     | **9,072**   |                                |   | 9,072 |   |
| Other                  assets                                                                                                                                                         |   |                                     | **6,362**   |                                |   | 7,301 |   |
| Total                  assets                                                                                                                                                         |   | **$**                                    | **171,510** |                                | $      | 190,488 |   |
|                                                                                                                                                                                  |   |                                     |        |                                |   |   |   |
| **LIABILITIES**                                                                                                                                                                       |   |                                     |        |                                |   |   |   |
| Current                  liabilities:                                                                                                                                                 |   |                                     |        |                                |   |   |   |
| Current                  maturities of long-term debt                                                                                                                                 |   | **$**                                    | **2,857**   |                                | $      | 2,857 |   |
| Accounts                  payable                                                                                                                                                     |   |                                     | **18,227**  |                                |   | 16,405 |   |
| Accrued                  salaries, wages and benefits                                                                                                                                 |   |                                     | **9,636**   |                                |   | 11,144 |   |
| Other                  accrued                  expenses                                                                                                                              |   |                                     | **2,287**   |                                |   | 1,765 |   |
|         Total                  current                  liabilities                                                                           |   |                                     | **33,007**  |                                |   | 32,171 |   |
|                                                                                                                                                                                  |   |                                     |        |                                |   |   |   |
| Long-term                  debt, exclusive of current maturities                                                                                                                      |   |                                     | **7,143**   |                                |   | 8,571 |   |
| Deferred                  income taxes                                                                                                                                                |   |                                     | **9,386**   |                                |   | 10,164 |   |
| Other                  long-term liabilities                                                                                                                                          |   |                                     | **6,559**   |                                |   | 6,833 |   |
| Total                  liabilities                                                                                                                                                    |   |                                     | **56,095**  |                                |   | 57,739 |   |
|                                                                                                                                                                                  |   |                                     |        |                                |   |   |   |
| **STOCKHOLDERS’EQUITY**                                                                                                                                                         |   |                                     |        |                                |   |   |   |
| Common                  stock, $.02 par value, 25,000,000 shares                  authorized11,131,810                  and                  12,252,000 shares issued and outstanding |   |                                     | **223**     |                                |   | 245 |   |
| Retained                  earnings                                                                                                                                                    |   |                                     | **115,370** |                                |   | 132,682 |   |
| Accumulated                  other comprehensive loss                                                                                                                                 |   |                                     | **(178**    | **)**                               |   | (178 | ) |
| Total                  stockholders’ equity                                                                                                                                     |   |                                     | **115,415** |                                |   | 132,749 |   |
|     Total                  liabilities and stockholders’ equity                                                                                             |   | **$**                                    | **171,510** |                                | $      | 190,488 |   |

----

**STANLEY        FURNITURE COMPANY, INC.**

|                                                              |   | Three                  Months                                                             |       | Nine                  Months                                                              |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|--------|
|                                                              |   |                            Ended        |       |                             Ended  |   |
|                                                              |   | **       September**                                   |       |         October                                   |   | **      September** |   |        October |   |
|                                                              |   | **         30,                  2006**  |       |          1,                  2005       |   | **        30,                  2006**  |   |          1,                  2005   |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Net                  sales                                        |   | **$**                                                                                     | **75,911** |                                                                                      | $      | 85,615 |   | **$** | **236,911** |   | $ | 252,200 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Cost                  of sales                                    |   |                                                                                      | **60,951** |                                                                                      |   | 65,131 |   |   | **184,575** |   |   | 190,619 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Gross                  profit                                     |   |                                                                                      | **14,960** |                                                                                      |   | 20,484 |   |   | **52,336** |   |   | 61,581 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative expenses     |   |                                                                                      | **9,996**  |                                                                                      |   | 11,106 |   |   | **32,447** |   |   | 33,396 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Operating                  income                                 |   |                                                                                      | **4,964**  |                                                                                      |   | 9,378 |   |   | **19,889** |   |   | 28,185 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Other                  income, net                                |   |                                                                                      | **91**     |                                                                                      |   | 71 |   |   | **252** |   |   | 190 |   |
| Interest                  income                                  |   |                                                                                      | **76**     |                                                                                      |   | 96 |   |   | **332** |   |   | 250 |   |
| Interest                  expense                                 |   |                                                                                      | **537**    |                                                                                      |   | 548 |   |   | **1,570** |   |   | 1,663 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Income                  before                  income taxes      |   |                                                                                      | **4,594**  |                                                                                      |   | 8,997 |   |   | **18,903** |   |   | 26,962 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Income                  taxes                                     |   |                                                                                      | **1,598**  |                                                                                      |   | 3,195 |   |   | **6,578** |   |   | 9,573 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Net                  income                                       |   | **$**                                                                                     | **2,996**  |                                                                                      | $      | 5,802 |   | **$** | **12,325** |   | $ | 17,389 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Earnings                  per share:                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Basic                                                             |   | **$**                                                                                     | **.26**    |                                                                                      | $      | .45 |   | **$** | **1.04** |   | $ | 1.35 |   |
| Diluted                                                           |   | **$**                                                                                     | **.26**    |                                                                                      | $      | .44 |   | **$** | **1.01** |   | $ | 1.31 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Weighted                  average shares outstanding:             |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Basic                                                             |   |                                                                                      | **11,396** |                                                                                      |   | 12,811 |   |   | **11,861** |   |   | 12,886 |   |
| Diluted                                                           |   |                                                                                      | **11,657** |                                                                                      |   | 13,198 |   |   | **12,147** |   |   | 13,294 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |
| Cash                  dividend declared and paid per common share |   | **$**                                                                                     | **.08**    |                                                                                      | $      | .06 |   | **$** | **.24** |   | $ | .18 |   |
|                                                              |   |                                                                                      |       |                                                                                      |   |   |   |   |   |   |   |   |   |

----

**STANLEY        FURNITURE COMPANY, INC.**

|                                                                                                                  |   | Nine Months                  Ended  |         |
|------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------------|
|                                                                                                             |   | **September 30,**                        |         | October                  1,  |   |
|                                                                                                             |   | **  2006**                     |         |               2005  |   |
| **Cash                  flows from operating activities:**                                                       |   |                                          |         |   |   |   |   |
| Cash                  received from customers                                                                    |   | **$**                                         | **234,933**  |   | $ | 247,093 |   |
| Cash                  paid to suppliers and employees                                                            |   |                                          | **(199,742** | **)** |   | (214,001 | ) |
| Interest                  paid, net                                                                              |   |                                          | **(1,335**   | **)** |   | (1,431 | ) |
| Income                  taxes paid, net                                                                          |   |                                          | **(8,612**   | **)** |   | (8,447 | ) |
| Net                  cash                  provided by operating activities                                      |   |                                          | **25,244**   |   |   | 23,214 |   |
|                                                                                                             |   |                                          |         |   |   |   |   |
| **Cash                  flows from investing activities:**                                                       |   |                                          |         |   |   |   |   |
| Capital                  expenditures                                                                            |   |                                          | **(2,023**   | **)** |   | (3,791 | ) |
| Purchase                  of other assets                                                                        |   |                                          | **(17**      | **)** |   | (33 | ) |
| Net                  cash used by                  investing activities                                          |   |                                          | **(2,040**   | **)** |   | (3,824 | ) |
|                                                                                                             |   |                                          |         |   |   |   |   |
| **Cash                  flows from financing activities:**                                                       |   |                                          |         |   |   |   |   |
| Repayment                  of senior notes                                                                       |   |                                          | **(1,428**   | **)** |   | (2,828 | ) |
| Purchase                  and retirement of common stock                                                         |   |                                          | **(28,282**  | **)** |   | (9,996 | ) |
| Proceeds                  from insurance policy loans                                                            |   |                                          | **1,241**    |   |   | 1,110 |   |
| Dividends                  paid                                                                                  |   |                                          | **(2,859**   | **)** |   |             (2,330 | ) |
| Proceeds                  from exercised stock options                                                           |   |                                          | **713**      |   |   | 6,335 |   |
| Tax                  benefit from exercise of stock options                                                      |   |                                          | **255**      |   |   |   |   |
| Net                  cash used by                  financing activities                                          |   |                                          | **(30,360**  | **)** |   | (7,709 | ) |
|                                                                                                             |   |                                          |         |   |   |   |   |
| Net                  increase (decrease) in cash                                                                 |   |                                          | **(7,156**   | **)** |   | 11,681 |   |
| Cash                  at beginning of period                                                                     |   |                                          | **12,556**   |   |   | 7,632 |   |
| **Cash                  at                  end of period**                                                      |   | **$**                                         | **5,400**    |   | $ | 19,313 |   |
|                                                                                                             |   |                                          |         |   |   |
| **Reconciliation                  of net income to net cash provided by                  operating activities:** |   |                                          |         |   |   |
| Net                  income                                                                                      |   | **$**                                         | **12,325**   |   | $ | 17,389 |   |
| Depreciation                                                                                                     |   |                                          | **4,368**    |   |   | 4,228 |   |
| Deferred                  income                  taxes                                                          |   |                                          | **(758**     | **)** |   | (524 | ) |
| Tax                  benefit from                  exercise of stock options                                     |   |                                          | **(255**     | **)** |   |   |   |
| Stock-based                  compensation                                                                        |   |                                          | **268**      |   |   |   |   |
| Loss                  on disposal                  of assets                                                     |   |                                          | **23**       |   |   |   |   |
| Changes                  in                  assets and liabilities:                                             |   |                                          |         |   |   |   |   |
| Accounts                  receivable                                                                             |   |                                          | **(1,314**   | **)** |   | (5,062 | ) |
| Inventories                                                                                                      |   |                                          | **10,195**   |   |   | 882 |   |
| Prepaid                  expenses                  and other current assets                                      |   |                                          | **(406**     | **)** |   | (1,085 | ) |
| Accounts                  payable                                                                                |   |                                          | **1,822**    |   |   | 2,907 |   |
| Accrued                  salaries, wages and benefits                                                            |   |                                          | **(1,262**   | **)** |   | 2,301 |   |
| Other                  accrued                  expenses                                                         |   |                                          | **777**      |   |   | 2,349 |   |
| Other                  assets                                                                                    |   |                                          | **(265**     | **)** |   | (56 | ) |
| Other                  long-term                  liabilities                                               |   |                                          | **(274**     | **)** |   | (115 | ) |
| Net                  cash                  provided by operating activities                                      |   | **$**                                         | **25,244**   |   | $ | 23,214 |   |

----

**STANLEY        FURNITURE COMPANY, INC.**

| 1. | **Preparation                  of Interim Unaudited Consolidated Financial                  Statements** |
|----|----------------------------------------------------------------------------------------------------------|

| 2. | **Stock-based                  Compensation**  |
|----|-----------------------------------------------------|

|                                                                                           |   |   Three                  MonthsEnded |   | Nine                  MonthsEnded |   |
|------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                           |   | October                                        |   | October                           |   |
|                                                                                           |   | 1,                  2005                  |   | 1,                  2005     |   |
| Net                  income as reported                                                        |   | $                                              | 5,802  |                              | $      | 17,389 |   |
| Deduct:                  Total stock-based compensation expense                  determined    |   |                                           |   |                              |   |   |   |
| under                  fair value                  based method for all awards, net of related |   |                                           |   |                              |   |   |   |
|   tax                  effects                                                       |   |                                           | 18     |                              |   | 495 |   |
| Pro                  forma net income                                                          |   | $                                              | 5,784  |                              | $      | 16,894 |   |
|                                                                                           |   |                                           |   |                              |   |   |   |
| Earnings                  per share:                                                           |   |                                           |   |                              |   |   |   |
| Basic                  - as                  reported                                          |   | $                                              | 0.45   |                              | $      | 1.35 |   |
| Basic                  - pro                  forma                                            |   | $                                              | 0.45   |                              | $      | 1.31 |   |
|                                                                                           |   |                                           |   |                              |   |   |   |
| Diluted                  - as                  reported                                        |   | $                                              | 0.44   |                              | $      | 1.31 |   |
| Diluted                  - pro                  forma                                          |   | $                                              | 0.44   |                              | $      | 1.27 |   |

----

| Expected                  price volatility | ** 36.1** | **%** |   |
|--------------------------------------------|----------------|-------|--------|
| Risk-free interest rate                    |  **4.7**  | **%** |   |
| Weighted average expected life in years    |  **5.2**  |       |   |
| Dividend yield                             |  **1.2**  | **%** |   |

|                                               |   |                       |                                                                |                            |   | Weighted                       |   |      |    |
|----------------------------------------------------|--------|----------------------------|---------------------------------------------------------------------|---------------------------------|--------|--------------------------------|--------|-----------|---------|
|                                               |   |                       |                                                                |                            |   | Average                        |   |      |    |
|                                               |   |                       |                                                                | Weighted                        |   | Remaining                      |   | Aggregate |    |
|                                               |   | Number                  of |                                                                | Average                         |   | Contractual                    |   | Intrinsic |    |
|                                               |   | Shares                |                                                                | Exercise                  price |   | Term                  (in yrs) |   | Value     |    |
|                                               |   |                       |                                                                |                            |   |                           |   |      |    |   |   |   |   |
| Outstanding                  at January 1, 2006    |   |                       | 855                                                                 |                            | $      | 14.71                          |   |      | 5.7     |   |   |   |   |
| Lapsed                                             |   |                       | ** (23)**                                                      |                            | **$**  | **17.49**                      |   |      |    |   |   |   |   |
| Exercised                                          |   |                       | ** (54)**                                                      |                            | **$**  | **13.21**                      |   |      |    |   |   |   |   |
| Granted                                            |   |                       | ** 25**                                                        |                            | **$**  | **27.59**                      |   |      |    |   |   |   |   |
|                                               |   |                       |                                                                |                            |   |                           |   |      |    |   |   |   |   |
| Outstanding                  at September 30, 2006 |   |                       | **          803** |                            | **$**  | **15.14**                      |   |      | **5.2** |   | **$** | **4,960** |   |
|                                               |   |                       |                                                                |                            |   |                           |   |      |    |   |   |   |   |
| Exercisable                  at September 30, 2006 |   |                       | ** 729**                                                       |                            | **$**  | **14.14**                      |   |      | **4.8** |   | **$** | **5,223** |   |

|                                                              |   | Three                  Months       |   | Nine                  Months   |   |
|-------------------------------------------------------------------|--------|-------------------------------------|--------|--------------------------------|--------|
|                                                              |   | Ended                          |   | Ended                     |   |
|                                                              |   | **September**                       |   | October                        |   | **September** |   | October |   |
|                                                              |   | **30,                  2006**  |   | 1,                  2005  |   | **30,                  2006**  |   | 1,                  2005  |   |
| Proceeds                  from stock options exercised            |   | **$**                               | **0**  |                           | $      | 1,225 |   | **$** | **713** |   | $ | 6,335 |   |
| Tax                  benefits related to stock options exercised  |   | **$**                               | **0**  |                           | $      |   503 |   | **$** | **255** |   | $ | 1,743 |   |
| Intrinsic                  value of stock options exercised  |   | **$**                               | **0**  |                           | $      | 1,361 |   | **$** | **689** |   | $ | 4,718 |   |

----

**Property,        Plant and Equipment**

|                                                                     |   |                |                                            |
|--------------------------------------------------------------------------|--------|---------------------|-------------------------------------------------|
|                                                                     |   | **September**  |                                            | December   |   |
|                                                                     |   |                | **30,                  2006**    |   |   | 31,                  2005 |   |
| Land                  and buildings                                      |   | **$**               | **40,800**                                      |   | $ | 39,894 |   |
| Machinery                  and equipment                                 |   |                | **78,435**                                      |   |   | 77,693 |   |
| Office                  furniture and equipment                          |   |                | **2,053**                                       |   |   | 1,916 |   |
| Property,                  plant                  and equipment, at cost |   |                | **121,288**                                     |   |   | 119,503 |   |
| Less                  accumulated depreciation                           |   |                | **72,850**                                      |   |   | 68,759 |   |
| Property,                  plant                  and equipment, net     |   | **$**               | **48,438**                                      |   | $ | 50,744 |   |

**Debt**

|                                                                              |   |                |                                      |
|-----------------------------------------------------------------------------------|--------|---------------------|-------------------------------------------|
|                                                                              |   | **September**  |                                      | December   |   |
|                                                                              |   |                | **30,                  2006**   |   |   | 31,                  2005 |   |
| 7.43%                  senior notes due through November 18, 2007                 |   | **$**               | **2,857**                                 |   | $ | 2,857 |   |
| 6.94%                  senior notes due through May 3, 2011                       |   |                | **7,143**                                 |   |   | 8,571 |   |
| Total                                                                             |   |                | **10,000**                                |   |   | 11,428 |   |
| Less                  current maturities                                          |   |                | **2,857**                                 |   |   | 2,857 |   |
| Long-term                  debt,                  exclusive of current maturities |   | **$**               | **7,143**                                 |   | $ | 8,571 |   |

**Employee        Benefits Plans**

|                                                   |   | Three                  Months               |     | Nine                  Months   |   |
|--------------------------------------------------------|--------|---------------------------------------------|----------|--------------------------------|--------|
|                                                   |   | Ended                                  |     | Ended                     |   |
|                                                   |   | **                    September** |     | October                        |   | **                     September** |   | October |   |
|                                                   |   | **30,                  2006**          |     | 1,                  2005  |   | **30,                  2006**  |   | 1,                  2005  |   |
| Interest                  Cost                         |   | **$**                                       | **$232** |                           | $      | 230 |   | **$** | **696** |   | $ | 715 |   |
| Expected                  return on plan assets        |   |                                        | **(245** | **)**                     |   | (248 | )  |   | **(736** | )  |   | (761 | )  |
| Net                  amortization and deferral         |   |                                        | **125**  |                           |   | 106 |   |   | **375** |   |   | 328 |   |
|     Net                  Cost      |   |                                        | **112**  |                           |   | 88 |   |   | **335** |   |   | 282 |   |
|  Settlement                Expense                |   |                                        | **341**  |                           |   |                                     286  |   |   |  **652** |   |   |  859 |   |
|     Total                  expense |   | **$**                                       | **453**  |                           | $      | 374 |   | **$** | **987** |   | $ | 1,141 |   |

----

|                                                                       |   | Three                  Months       |    | Nine                  Months   |   |
|----------------------------------------------------------------------------|--------|-------------------------------------|---------|--------------------------------|--------|
|                                                                       |   | Ended                          |    | Ended                     |   |
|                                                                       |   | **September**                       |    | October                        |   | **September** |   | October |   |
|                                                                       |   | **30,                  2006**  |    | 1,                  2005  |   | **30,                  2006**  |   | 1,                  2005  |   |
| Service                  cost                                              |   | **$**                               | **25**  |                           | $      | 22 |   | **$** | **73** |   | $ | 66 |   |
| Interest                  cost                                             |   |                                | **43**  |                           |   | 46 |   |   | **130** |   |   | 138 |   |
| Amortization                  of transitions obligation                    |   |                                | **33**  |                           |   | 33 |   |   | **98** |   |   | 99 |   |
| Amortization                  of net actuarial loss                   |   |                                | **10**  |                           |   | 17 |   |   | **31** |   |   | 51 |   |
| Net                  periodic                  postretirement benefit cost |   | **$**                               | **111** |                           | $      | 118 |   | **$** | **332** |   | $ | 354 |   |

| 6. | **Stockholders’                  Equity** |
|----|-------------------------------------------------|

|                                                                                                                   |   | Three                  Months       |       | Nine                  Months   |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|--------------------------------|--------|
|                                                                                                                   |   | Ended                          |       | Ended                     |   |
|                                                                                                                   |   | **September**                       |       | October                        |   | **September** |   |       October |   |
|                                                                                                                   |   | **30,                  2006**  |       | 1,                  2005  |   | **30,                  2006**  |   | 1,                  2005  |   |
| Weighted                  average shares outstandingfor                  basic                  calculation            |   |                                | **11,396** |                           |   | 12,811 |   |   | **11,861** |   |   | 12,886 |   |
| Add:                  Effect of dilutive stock options                                                                 |   |                                | **261**    |                           |   | 387 |   |   | **286** |   |   | 408 |   |
| Weighted                  average shares outstandingAdjusted                  for                  diluted calculation |   |                                | **11,657** |                           |   | 13,198 |   |   | **12,147** |   |   | 13,294 |   |

|                                                                           |   |        |    |                                                      |   |       |   | Accumulated   |                                                                               |
|--------------------------------------------------------------------------------|--------|-------------|---------|-----------------------------------------------------------|--------|------------|--------|---------------|------------------------------------------------------------------------------------|
|                                                                           |   |        |    |      Capital                  in |   |       |   | Other         |                                                                               |
|                                                                           |   | Common      |    |      Excess                  of  |   | Retained   |   | Comprehensive |                                                                               |
|                                                                           |   | Stock  |    | Par                  Value                                |   | Earnings   |   | Loss          |                                                                               |
| Balance,                  December 31, 2005                                    |   | $           | 245     |                                                      |   |       |   | $             | 132,682                                                                            |   | $ | (178 | ) |
|                                                                           |   |        |    |                                                      |   |       |   |          |                                                                               |   |   |   |   |
| **Net                  income**                                                |   |        |    |                                                      |   |       |   |          | **12,325**                                                                         |   |   |  |   |
| **Exercise                  of stock options**                                 |   |        | **1**   |                                                      | **$**  | **712**    |   |          |                                                                               |   |   |   |   |
| **Tax                  benefit on exercise of stock                  options** |   |        |    |                                                      |   | **255**    |   |          |                                                                               |   |   |   |   |
| **Stock                  repurchases**                                         |   |        | **(23** | **)**                                                     |   | **(1,511** | **)**  |          | **(26,748**                                                                        | **)** |   |   |   |
| **Stock                  awards**                                              |   |        |    |                                                      |   | **246**    |   |          |                                                                               |   |   |   |   |
| **Stock-based                  compensation**                                  |   |        |    |                                                      |   | **298**    |   |          | **(30**                                                                            | **)** |   |   |   |
| **Cash                dividends paid, $.24 per share**                         |   |        |    |                                                      |   |       |   |          |            **(2,859 ** | **)**  |   |   |   |
| **Balance,                  September 30, 2006**                               |   | **$**       | **223** |                                                      |   |       |   | **$**         | **115,370**                                                                        |   | **$** | **(178** | **)** |

**7.****New        Accounting Standards**

----

** **** **

**Management’s Discussion and Analysis of        Financial Condition and Results of Operations**

**Results        of Operations**

----

|                                                          |   | Three                  Months       |      | Nine                  Months   |   |
|---------------------------------------------------------------|--------|-------------------------------------|-----------|--------------------------------|--------|
|                                                          |   | Ended                          |      | Ended                     |   |
|                                                          |   | **September**                       |      | October                        |   | **September** |   | October |   |
|                                                          |   | **30,                  2006**  |      | 1,                  2005  |   | **30,                  2006**  |   | 1,                  2005  |   |
| Net                  sales                                    |   |                                | **100.0** | **%**                          |   | 100.0 | % |   | **100.0** | **%** |   | 100.0 | % |
| Cost                  of sales                                |   |                                | **80.3**  |                           |   | 76.1 |   |   | **77.9** |   |   | 75.6 |   |
| Gross                  profit                                 |   |                                | **19.7**  |                           |   | 23.9 |   |   | **22.1** |   |   | 24.4 |   |
| Selling,                  general and administrative expenses |   |                                | **13.2**  |                           |   | 13.0 |   |   | **13.7** |   |   | 13.2 |   |
| Operating                  income                             |   |                                | **6.5**   |                           |   | 11.0 |   |   | **8.4** |   |   | 11.2 |   |
| Other                  income, net                            |   |                                | **.1**    |                           |   | .1 |   |   | **.1** |   |   | .1 |   |
| Interest                  income                              |   |                                | **.1**    |                           |   | .1 |   |   | **.1** |   |   | .1 |   |
| Interest                  expense                             |   |                                | **.7**    |                           |   | .6 |   |   | **.6** |   |   | .7 |   |
| Income                  before                  income taxes  |   |                                | **6.0**   |                           |   | 10.5 |   |   | **8.0** |   |   | 10.7 |   |
| Income                  taxes                                 |   |                                | **2.1**   |                           |   | 3.7 |   |   | **2.8** |   |   | 3.8 |   |
| Net                  income                                   |   |                                | **3.9**   | **%**                          |   | 6.8 | % |   | **5.2** | **%** |   | 6.9 | % |

----

**Financial        Condition, Liquidity and Capital        Resources**

**Pension        Plan Termination**

----

**Critical        Accounting Policies**

**Recently        Issued Accounting Standards**

**Forward-Looking        Statements**

----

| **ITEM                  3.** | ** ****Quantitative                  and Qualitative                  Disclosures about Market Risk** |
|------------------------------|------------------------------------------------------------------------------------------------------------|

| **ITEM                  4.** | **Controls                  and                  Procedures** |
|------------------------------|---------------------------------------------------------------|

| (a) | Evaluation                  of disclosure controls and procedures. Under the                  supervision and with the participation of our management, including                  our                  principal executive officer and principal financial officer, we                  conducted                  an evaluation of our disclosure controls and procedures, as such                  term is                  defined under Rule 13a-15(e) promulgated under the Securities Exchange                  Act                  of 1934, as amended (the Exchange Act). Based on this evaluation,                  our                  principal executive officer and our principal financial officer                  concluded                  that our disclosure controls and procedures were effective as of                  the end                  of the period covered by this quarterly                  report. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Changes                  in internal controls over financial reporting. There                  were no changes in our internal control over financial reporting                  that                  occurred during the third quarter that have materially affected,                  or are                  reasonably likely to materially affect, our internal control over                  financial reporting. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item                  2. | Unregistered                  Sales of Equity Securities and Use of                  Proceeds |
|--------------------------|-----------------------------------------------------------------------------------------------|

|                                               |                       |                        |                                 | Maximum                  number (or    |
|----------------------------------------------------|----------------------------|-----------------------------|--------------------------------------|----------------------------------------|
|                                               |                       |                        | Total                  number of     | approximate                  dollar    |
|                                               | Total                      |                        | Shares                  purchased    | value)                  of shares that |
|                                               | number                  of | Average                     | as                  part of publicly | may                  yet be purchased  |
|                                               | Shares                     | price                  paid | announced                  plans     | under                  the plans or    |
| Period                                             | Purchased                  | per                  share  | or                  programs         | programs                  (a)          |
|                                               |                       |                        |                                 |                                   |
| July                  2 to August 5, 2006          | 218,500                    | $22.27                      | 218,500                              | $45,133,367                            |
| August                  6 to September 2, 2006     | 151,845                    | $22.51                      | 151,845                              | $41,715,033                            |
| September                  3 to September 30, 2006 | 178,000                    | $21.47                      | 178,000                              | $37,893,302                            |
|                                               |                       |                        |                                 |                                   |
| Total                                              | 548,345                    |  $22.08                | 548,345                              |                                   |

| (a) | On                  July 17, 2006, we announced that our Board of Directors                  increased our stock repurchase authorization to $50 million. Consequently,                  we may purchase our common stock, from time to time, either directly                  or                  through agents, in the open market, through negotiated purchases                  or                  otherwise, at prices and on terms satisfactory to                  us. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 3.1    | Restated                  Certificate of Incorporation of the Registrant as                  amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form                  10-Q (Commission File No. 0-14938) for the quarter ended July 2,                  2005).                                                                          |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                             |   |
| 3.2    | By-laws                  of the Registrant as amended (incorporated by                  reference to Exhibit 3 to the Registrant’s Form 10-Q (Commission File No.                  0-14938) for the quarter ended September 27, 2003).                                                                                                                     |   |
|   |                                                                                                                                                                                                                                                                                                                                                             |   |
| 10.1   | Third                  amendment, dated June 14, 2006, to the revolving                  credit facility dated August 29, 2003, between the Registrant and                  Wachovia                  Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Form                  8-K (Commission File No. 0-14938) filed on July 18, 2006). |   |
|   |                                                                                                                                                                                                                                                                                                                                                             |   |
| 31.1   | Certification                  by Jeffrey R. Scheffer, our Chief Executive                  Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant                  to                  Section 302 of the Sarbanes-Oxley Act of 2002.(1)                                                                                                              |   |
|   |                                                                                                                                                                                                                                                                                                                                                             |   |
| 31.2   | Certification                  by Douglas I. Payne, our Chief Financial                  Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant                  to                  Section 302 of the Sarbanes-Oxley Act of 2002. (1)                                                                                                                |   |
|   |                                                                                                                                                                                                                                                                                                                                                             |   |
| 32.1   | Certification                  of Jeffrey R. Scheffer, our Chief Executive                  Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant                  to                  section 906 of the Sarbanes-Oxley Act of 2002. (1)                                                                                                           |   |
|   |                                                                                                                                                                                                                                                                                                                                                             |   |
| 32.2   | Certification                  of Douglas I. Payne, our Chief Financial                  Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant                  to                  section 906 of the Sarbanes-Oxley Act of 2002. (1)                                                                                                              |   |

----

| Date:                  October 17, 2006 |   | **STANLEY                  FURNITURE COMPANY, INC.**                                          |
|-----------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                    |   | By:                  /s/ Douglas I. Payne                                                     |
|                                    |   | Douglas                  I. Payne                                                             |
|                                    |   | Executive                  V.P. - Finance & Administration And                  Secretary |
|                                    |   | (Principal                  Financial and Accounting                  Officer)                |