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Tough Road Ahead for Martha Stewart's Empire

Martha Stewart (search) built her namesake company around the good life, but the business will have a hard time peddling its apple-pie image now that she has been convicted of lying to investigators about a suspicious stock sale, analysts said.

Martha Stewart Living Omnimedia Inc. (MSO) might be forced to consider a name change or even put itself up for sale now that its founder faces a possible jail sentence, analysts said.

"The fact she was found guilty to me means the odds of the company being put on the block go up quite a bit," said Peter Cohan, a management consultant in Marlborough, Mass. who has tracked the company.

The company, whose shares dropped more than 22 percent after the verdict was delivered, said in a statement it was "deeply saddened" by the decision but that its assets were more than sufficient to continue its development as a company. It said its board of directors would meet to assess the situation.

A day earlier, Chief Executive Sharon Patrick, who took over after Stewart's indictment, vowed the company would carry on with its business regardless of the trial's outcome.

The company's image is closely tied to Stewart's personal reputation as a cheerful homemaker who has instructed millions of Americans how to cook, garden and decorate.

The guilty verdict could prevent Stewart from ever serving as an executive in the company she transformed from a catering business into a media empire whose reach extends to magazines, TV programs and household products sold through Kmart (KMRT) stores.

"The company has to continue to distance itself from the person and create what Martha Stewart the brand represents versus who the person is ... ," said Steven Addis, chief executive of the Addis Group branding agency. "They are going to take a hit with this."

The company has been battered since controversy erupted in 2002 over Stewart's personal sale of shares of a drug company run by a friend. Her company was not accused of any wrongdoing.

Her legal woes caused advertisers to flee her TV programs and magazines. Separately, the company also faces a lawsuit from Kmart over disputed royalties.

Robert Passikoff, president of brand consulting firm Brand Keys, said Martha Stewart Living can survive -- in large part because its balance sheet boasts a healthy $169 million in cash and no debt -- but the company "clearly is not going to be in the same state as it was 22 months ago."

"They are now going to find themselves in a situation where they are competing on a level playing field with anyone else that provides the product and services that she does," he said.

The New York-based company on Thursday posted an annual loss for 2003, its first yearly loss since going public in 1999, and it forecast more losses in the current first quarter on sluggish advertising. Last year, ad pages at the flagship Martha Stewart Living magazine (search) dropped 35 percent.

Cohan, the management consultant, said sales of Martha Stewart-branded furniture and household products have remained surprisingly strong, suggesting the merchandising operations could have a future regardless of what happens to the larger business.

Over the past couple of years, the company has moved away from its once overwhelming focus on Stewart. Its magazine covers now feature generic images such as flowers or pies instead of bucolic scenes of a smiling Stewart.

It has also launched new titles, such as Everyday Food (search), that do not prominently bear her name.