Martha Stewart Earnings Up 25 Percent

Martha Stewart Living Omnimedia Inc., the company run by the domestic lifestyle icon, on Wednesday reported a 25 percent rise in third-quarter earnings and announced plans to add furniture and floor coverings to its offerings for the home.

Investors cheered the expansion plans and the resiliency of the company's results, sending the stock up more than 19 percent, or $2.74, to $16.84 in afternoon trade on the New York Stock Exchange. 

"They are doing a good job in a bad environment," said Laura Richardson, an analyst at Adams, Harkness & Hill. "It's tough to be a media company now, but Martha Stewart Living has more to offer than just a media company because it has this strong brand that works on consumer products as well as in publishing, and it has a multi-media platform for advertisers." 

The company said third-quarter net income jumped to $4.8 million, or 10 cents per share, from $3.8 million, or 8 cents per share, a year earlier. 

Analysts polled by Thomson Financial/First Call, on average, had expected earnings of 9 cents per share, with estimates ranging from 8 cents to 10 cents. 

Revenues rose 13 percent to $69.6 million, with growth slowed by the softness in the advertising market. 

"We have initiated programs that will provide earnings growth well beyond 2002 and that will significantly add to the product offerings of our signature line," Stewart said. "It will deepen our brand penetration into the home." 

The company announced multiyear merchandising pacts with Bernhardt Furniture Co. and Shaw Industries Inc. to design and market home furniture and floor coverings bearing the "Martha Stewart Signature" label. Shaw is a unit of Berkshire Hathaway Inc. 

"It is something I've been waiting for because it's part of their future growth and stability of revenue," said Jeff Klinefelter, an analyst at US Bancorp Piper Jaffray. "It's a media company with a growing presence in commerce. It is going to be what drives shareholder value. That's why it's very important that they made this announcement. It's going to be a great economic hedge from them." 

Stewart's media and retail empire includes magazines, books and television shows, as well as a segment that sells everything from bed sheets to paint. The Internet and direct commerce segment houses the company's catalog and Web site. 

The company can use advertising and brand-building as a carrot and then fill in the rest with commerce, which is more stable and profitable, Klinefelter said. 

In a conference call with analysts, Chief Financial Officer Jim Follo said the company expects fourth-quarter earnings of 12 cents a share and full-year earnings of 45 cents as the company contends with the continued ad slump and challenging retail climate. 

Analysts had expected the company to post fourth-earnings of 11 cents to 17 cents a share, with a consensus estimate of 14 cents, according to First Call. They expect full-year earnings of 44 cents to 51 cents a share, with a consensus of 46 cents. 

Revenue growth in the third quarter benefited from an additional issue of Martha Stewart Living magazine, but this was offset by the softness in advertising. 

Television revenues were also hurt by lower ad revenue, due primarily to the preemption of the company's syndicated program for coverage of the Sept. 11 attacks on the United States. 

Follo said TV revenues and earnings before interest, taxes, depreciation and amortization would be hurt in the fourth quarter by lower ad revenues but would benefit from higher returns from licensing agreements. 

"While the advertising market and economy continue to be challenging, we are evaluating all elements of our business, including our cost structure, to ensure that our strong financial performance continues into the future," Follo said. 

He said ad pages at Martha Stewart Living magazine would be down about 20 percent in the fourth quarter because of the Sept. 11 attacks, but the decline will be offset by special issues to come out during the quarter. 

Company executives said the Internet/direct commerce business has not met their expectations but they are taking steps to change this, including launching the new Web site. 

The unit will disappoint if it is unable to significantly narrow its losses and grow revenue in the next year, Follo said. 

Martha Stewart Living Omnimedia, which has deals in Canada and Japan, plans to pursue opportunities in selected European and other Asian markets.