The key to any successful company in a competitive industry is differentiation. Simply put, companies must find a competitive advantage or decent niche if success is the ultimate goal. Stanley Furniture (NASDAQ:STLY), a leading maker of wood furniture targeted at the upper-medium price range of the residential market, has found a niche and produced 10 consecutive quarters of year-over-year sales growth.

Being a furniture manufacturer these days has been about as tough as playing tennis in a blizzard. Companies such as Ethan Allen Interiors (NYSE:ETH), Herman Miller (NASDAQ:MLHR), La-Z-Boy (NYSE:LZB), Furniture Brands (NYSE:FBN), and Bombay (NYSE:BBA) have seen their shares drop recently over a range of concerns, including rising raw material costs and sagging demand. Apparently, passing the additional costs on to consumers has been a difficult task for these companies.

Stanley Furniture reported an 18% increase in its third-quarter sales as the company used its successful niche strategy to gain additional market share. Earnings of $0.81 per share were $0.07 better than the analysts' consensus estimate and widely beat last year's earnings of $0.59 per share. The company credited this operating improvement to increased production levels and savings from sourcing initiatives, which offset higher raw material costs, wages, employee benefits, and energy costs, and tariffs imposed on the wooden bedroom furniture imported from China.

Stanley expects net sales to increase 7% to 10% in the fourth quarter to a range of $77.5 million to $80 million. For the full-year 2004, net sales are forecasted to grow 13% to 14% in a range of $295.6 million to $298.1 million ($288 million had been expected). Earnings for the fourth quarter are projected at $0.78 to $0.83 per share, ahead of the $0.70 earned last year. For the year, earnings are expected to be approximately $3.10 to $3.15 per share (up from the previous estimate of $3.07), up from the $2.34 per share of 2003.

The company's focus on the upper-medium price range has helped it largely avoid the difficult economic conditions experienced by the lower-middle and the middle class. With interest rates still hovering at historically attractive levels, demand for Stanley's furniture should remain healthy along with interest rates for at least the next few quarters.

Stanley Furniture shares are trading at an attractive 14 times the 2004 earnings estimate of $3.12 per share, which is at a steep discount relative to the 30%-plus growth expected this year (the shares also sport a dividend yield of 0.94%).

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Fool contributor Phil Wohl spent more than 12 years on Wall Street. He does not own shares of any of the companies mentioned.