Martha Stewart Living Omnimedia Inc. (MSO), whose founder is to be released from prison next month, Wednesday said it had a fourth-quarter loss on scaled-back television operations and advertising declines at its flagship magazine.

The media and merchandising company forecast a wider-than-expected loss in the current first quarter.

Omnimedia's business has weathered a blow over the past few years on the legal travails of Martha Stewart, a homemaking entrepreneur convicted last year of lying to investigators about a personal stock sale.

Susan Lyne (search), the company's chief executive, told Reuters in a telephone interview that the company was optimistic about its prospects for 2005. Stewart has struck deals with TV producer Mark Burnett to revive her daily lifestyle show and to star in a prime-time spinoff of NBC reality show "The Apprentice (search)."

"Her title is founder, and I anticipate that she will be involved in a lot of big picture strategies for us, in terms of new businesses we might launch," Lyne said.

Plans are in the works to start production on the new syndicated daytime show in the second quarter, the company said.

Still, shares gained more than 8 percent on the day to the highest level in more than five years. Shares have tripled over the past six months to over $37 a share, but several analysts who follow the company say the stock is overvalued.

The gains Wednesday likely were triggered by short sellers — who make bets stock prices will fall — forced to cover their positions after the stock edged up following the release of the financial results instead of declining as they had hoped, said Douglas Arthur, a Morgan Stanley analyst who rates the stock "underweight."

"This stock is in the mid-30s because of a short squeeze, from everything I can determine," he said. "If the stock can't go down on those kinds of numbers, and that kind of guidance, what's going to cause it to go down?"

In the fourth quarter, the company reported a net loss of $7.3 million, or 15 cents per share. That compares with a net profit of $2.4 million, or 5 cents a share, a year earlier.

The company had a loss from continuing operations of 14 cents a share. That was narrower than the 16-cent-a-share loss expected by Wall Street analysts, according to the consensus forecast compiled by Reuters Estimates.

Quarterly revenue fell to $60.2 million from $70.9 million a year earlier. The publishing, TV and Internet units all had revenue declines, but revenue rose at the merchandising unit.

The company said the merchandise increases reflected contractual minimum royalty guarantees with Kmart Holding Corp. (KMRT) stores, where the company sells a line of housewares, as well as revenue from the cancellation of its Martha Stewart Signature flooring program.

The company forecast a loss of about 35 cents a share in the current first quarter. Analysts on average have projected the company would have a loss of 20 cents a share, according to Reuters Estimates.

Stewart began serving a five-month sentence at a West Virginia prison in October. After her expected release next month, she is due to serve another five months of home confinement.

The company has been trying to branch out to other offerings, such as new cooking magazine Everyday Food, that do not focus on Stewart's identity.

It said Everyday Food would increase its rate base, the circulation guaranteed to advertisers, to 850,000 in July, up from 800,000 in January.

Shares gained $2.92 to $37.40 on the New York Stock Exchange (search).