Wednesday, August 4, 2004

Martha Stewart Inc. takes bath

By Anne D'Innocenzio
The Associated Press

NEW YORK - Martha Stewart Living Omnimedia Inc. - still reeling from the personal legal woes of its founder, former chairwoman and CEO, who was sentenced to prison last month - posted a wider loss than Wall Street expected in the second quarter as it struggles with declining advertising. It also warned of more losses for the rest of the year.

In a move to focus on its strengths, the New York-based company also announced Tuesday that it will eliminate its catalog business called The Catalog for Living by year-end, though it will continue with its direct-to-consumer floral business, marthaflowers, and its Web site,

Consequently, the company's work force will be reduced to 450 from the current 474 by year-end. That's down from 558 at the beginning of 2004.

It also announced the launch of Everyday Food, a television program that will air on PBS stations nationwide, building on the success of its magazine that bears the same title. It is the company's latest step to distance itself from Stewart's name, which is stamped on an array of products, from pots to towels.

Martha Stewart Living posted a loss of $19.29 million, or 39 cents per share, in the three months ended June 30 in contrast to a profit of $931,000, or 2 cents per share, in the year-ago period.

Analysts surveyed by Thomson First Call expected a loss of 33 cents in the second quarter.

Martha Stewart Living shares fell 15 cents, or 1.3 percent, to close at $11.25 on the New York Stock Exchange.

Revenue dropped 33 percent to $44 million from $65.8 million a year ago, dragged down particularly by its publishing division, which has suffered from a defection of advertisers.

In a conference call with analysts on Tuesday, Sharon L. Patrick, president and chief executive, tried to offer a brighter outlook for the company, noting that the company believes that only when Stewart's legal problems are fully resolved will "large numbers of advertisers" return.

However, she warned that if a complete resolution is not made soon, the company may need to "take additional actions" to improve financial performance.

Stewart, the founding editorial director who was convicted in March of lying to investigators about her sale of ImClone Systems Inc. shares, was sentenced July 16 to five months in prison and five months of house arrest. The sentence was stayed pending an appeal.

Many experts think the future of Martha Stewart Living could rest heavily on Stewart's decision to serve her sentence immediately or stay out on appeal, a process that could last well into 2005. Postponing jail time, according to experts, will prolong the uncertainty that has dogged the multimedia empire since Stewart's name was tied to the ImClone stock trading scandal two years ago. Advertisers have fled because of her tainted name and her unresolved legal problems, and many say that the best scenario for the brand would be for the homemaking maven to serve her sentence immediately. Stewart could still pursue her appeal, if she starts serving time.

"The uncertainty is not behind them," said Dennis McAlpine, managing director of McAlpine Associates, a research company. "Would it help that Martha serves her time? You bet. Advertisers will definitely not come back until things are resolved."

One of the few bright spots is that Martha Stewart Living has no debt and has about $158 million in cash, which will give the company more time to rebuild the business as it struggles with losses.

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