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Martha Stewart Living Omnimedia Loss Widens on Ad Decline

Martha Stewart Living Omnimedia Inc. (MSO) reported a wider-than-expected loss for the first quarter as advertising revenue declined and it struggles with the fallout from a felony conviction of its namesake founder who once ran the company.

The company on Friday also offered a downbeat outlook, warning that losses for the second quarter would be greater than Wall Street expected.

Its shares tumbled 6.5 percent on the New York Stock Exchange (search).

James Follo, chief financial and administrative officer, also said that the company is conducting a "comprehensive review" of its businesses, and will "evaluate the best options to reduce losses and optimize our cost structure."

The New York-based company said it also plans to place greater emphasis on the name "living" with its Martha Stewart Living magazine (search), starting with the June issue.

For the three months ended March 31, Martha Stewart Living Omnimedia reported a loss of $20.26 million, or 41 cents per share, in contrast to a loss of $4.51 million, or 9 cents per share, a year ago.

Analysts surveyed by Thomson First Call expected a loss of 20 cents.

Company officials said that the greater-than-expected loss was due to a higher income tax expense.

Overall revenue fell to $44.49 million from $58.02 million in the year-ago period. That was slightly below Wall Street's forecast of $45.2 million.

For the second quarter, the company said that it anticipates a loss of approximately 35 cents to 40 cents per share. Analysts surveyed by Thomson First Call expected a loss of 12 cents.

The publishing sector, which accounts for about 55 percent of the company's business, posted a 30 percent drop in revenue to $23.9 million from $34.1 million in the year-ago period. The results reflect lower advertising and circulation revenue in the quarter from Martha Stewart Living magazine.

Television, which accounts for about 11 percent of total sales, recorded revenues of $4.2 million, down 36 percent from $6.6 million in the prior year's quarter. The company said the TV division was hurt by the loss of coverage, beginning in March, of its nationally syndicated daily show in certain markets as a result of the conviction.

Revenues in the Internet/direct commerce segment, which makes up about 12 percent of overall sales, were $5.6 million. That compares with $7.0 million in the year-ago period.

Revenues in merchandising, which makes up about 22 percent of the overall business, were $10.8 million, compared with $10.3 million in the year-ago period. The increase in revenue was primarily due to the recognition of certain minimum royalty amounts from its partnership with Kmart.

While Martha Stewart Living has struggled from a fallout in advertising, one silver lining is that consumers for the most part have remained loyal.

"Our research shows that the magazine subscribers, in particular, were unfazed by the verdict immediately afterwards and remain so roughly six weeks later," said Sharon L. Patrick, president and CEO in a statement.

Meanwhile, the company reported that sales of its Martha Stewart Living Everyday (search) merchandise at Kmart (KMRT) was up 6.5 percent since the verdict in March. The company recently reaffirmed its partnership with Kmart.

The company's ex-chairman and CEO Martha Stewart was convicted on March 5 for lying about why she sold 3,928 shares of ImClone Systems stock in 2001, just before the stock price plunged. On Wednesday, a federal judge refused to grant Stewart a new trial, dismissing claims that a juror lied to hide a bias against the homemaker maven.

Stewart's lawyers said they disagreed with the ruling and planned to appeal errors that "deprived Martha Stewart of a fair trial.

Stewart is expected to be sentenced June 17, and faces 10 to 16 months in prison. However, she could end up spending half that time in home confinement.