Conviction Expected to Damage Martha's Business

Martha Stewart's (search) conviction will badly damage her company, scaring advertisers and perhaps readers and viewers away from her media business, industry experts said. Sales of her towels and other household goods may hold up better.

Within an hour of the verdict, Martha Stewart Living Omnimedia Inc. (search) issued a statement saying the board would meet promptly to carefully "evaluate the situation and take actions as appropriate."

"In the meantime, we are confident that our assets ... are more than sufficient to continue MSO's development as a leading 'how to' brand building company," it said.

Observers, however, believe it will be difficult to sustain the brand with the name and face of the company tarnished by a conviction — especially with competition that has intensified since Stewart's legal woes began 22 months ago.

Stewart was found guilty Friday of obstructing justice and lying to the government about a stock sale. She said she would appeal.

"This is a terrible tragedy for a great brand," said Seth Siegel, co-founder of The Beanstalk Group (search), a trademark licensing agency.

Stewart's company, which has been adding new magazines and TV shows without her name over the past year — "Petkeeping with Marc Morrone" and "Everyday Food" — will have to keep developing other brands or personalities, Siegel said.

"The company can still survive because it has phenomenal infrastructure," Siegel said, although he added that it could take years for many advertisers to return.

The company "has to rebuild itself," said T.K. MacKay, an analyst at Morningstar (search). "There have been dramatic declines in ad revenue."

The good news, analysts said, is Martha Stewart Living has $170 million in cash on hand, enough to withstand several more quarters of declining ad revenue.

Investors didn't immediately see an upside. Shares in the company plunged 23 percent after the verdict was announced to close at $10.86. Shares had been trading about $19 per share before Stewart's name was tied to the scandal.

While advertisers have fled, sales of Martha Stewart-branded merchandise at Kmart and other stores held up well during and before the trial. Kmart officials could not immediately be reached for comment.

Mac Ryland, director of interior furnishings at the consulting company Kurt Salmon Associates (search), doesn't believe retailers will abandon Martha Stewart.

G. Alex Bernhardt Sr., CEO of Bernhardt Furniture Co. (search), which recently launched collections under the Martha Stewart Brand, said the brand is separate from Stewart's legal woes. "We are totally committed," he said.