Martha Stewart Living Omnimedia Inc. (MSO), the media and merchandising company headed by style guru Martha Stewart, Monday said Sears Canada Inc. will become the exclusive Canadian retailer for Martha Stewart Everyday home and garden products.

"Canada's not that much in terms of revenue, but the main takeaway is that Sears clearly represents a likely (U.S.) partner down the road," said analyst George Smith of brokerage Davenport & Co.

In the United States, Martha Stewart Everyday is distributed through bankrupt discounter Kmart Corp.. Martha Stewart r if Kmart fails to meet its obligations.

"It could be laying the groundwork for a stronger relationship with Sears USA if something does happen to Kmart," said analyst Kathleen Heaney of brokerage Brean Murray & Co.

Martha Stewart Living has an exclusive contract with Kmart until 2008. It is allowed by contract to talk to other retailers in the event of Kmart's bankruptcy, but the company declined to comment on any potential U.S. retail partnerships.

Shares of Martha Stewart climbed as much as 6 percent in New York Stock Exchange trading Monday, before sliding a bit to trade up 50 cents, or 2.8 percent, at $18.27.

New York-based Martha Stewart entered a multiyear agreement with retailer Sears Canada -- which is 55 percent owned by No. 4 U.S. retailer Sears, Roebuck and Co. -- to distribute the brand label upon expiration of its current arrangement with Hudson's Bay Co. unit Zellers Inc., which launched the brand in 1998.

"This kind of shows you how easily they can replace somebody," Heaney said.

SEARS GETS GARDEN LINE

Martha Stewart Everyday collections in the bed and bath, housewares, gardening, textiles, and seasonal products will become available in the summer of 2003 at most of Sears Canada's 125 department stores, 37 furniture and appliance stores, its general merchandise catalog and the Internet site www.sears.ca.

Sears Canada's merchandising approach and multiple channels of distribution, including the catalog and online services, are among the reasons the retailer was chosen to replace Zellers, Martha Stewart said.

In addition, Sears Canada will sell a gardening line, which was not previously available at Zellers.

Martha Stewart Living did not provide revised financial guidance, but said it expects the change to have a favorable impact since it will be selling more products with the availability of the garden line.

"In terms of revenue and other contributions, maybe Sears could be a little stronger than Zellers, but I'm not changing any of my estimates because of this relationship," analyst Kathleen Heaney said.

In the first quarter, Martha Stewart's earnings were hurt by closures of Kmart stores. Troy, Michigan-based Kmart filed for Chapter 11 in January, prompting industry watchers to ponder the possibility of Martha Stewart partnering with another U.S. retailer.

Sears, Wal-Mart Stores Inc., Target Corp. and Kohl's Corp. are all likely candidates, Heaney said.

"It's hard to say which way they would go because you have to look at each thing," such as the amount of shelf space, number of products and product lines, and type of royalty structure, Heaney said.

Sears already carries Martha Stewart paint, and has expressed interest in expanding their relationship in the states, analyst George Smith said.

"It's obvious they're trying to step up the strength of their brand names," Smith added.

Earlier Monday, Hoffman Estates, Illinois-based Sears announced that it agreed to buy Lands' End Inc., the top catalog and Internet specialty clothing retailer, for about $1.9 billion cash, in a bid to revive its laggard apparel business.