This is a partial transcript from "Your World with Neil Cavuto," July 26, 2006, that was edited for clarity.

NEIL CAVUTO, HOST: Well, you know, this Middle East conflict is adding to a lot of violence across the world. That, we know. We know that gas prices are now above $3. We know that many Americans are feeling very anxious.

And that could be helping Martha Stewart out, as people tend to nest, at least cocoon in their homes, as one Faith Popcorn used to put it, when times are dicey. Today, Martha's namesake company reporting a much smaller quarterly loss than a year ago, thanks to a surge in ad sales. And that sent her stock surging over 10 percent just today.

Here with us is Martha Stewart.

MARTHA STEWART, FOUNDER, MARTHA STEWART LIVING OMNIMEDIA: Hi.

CAVUTO: Hey, Martha. Good to see you.

STEWART: Very nice to see you.

CAVUTO: Something must be helping you. What is it?

STEWART: Oh, well, we're well on the road to recovery. And we're very happy about that.

Business is back as usual. We have so many new initiatives at the company, too, all having to do with the home, with the family, with projects that the families can do.

One thing that we're really happy with is this deal that we have with Kodak, where we're designing the templates for unique products that you can use your photography for: cards, albums, beautifully designed by our people, of course. And you send in your photos to EasyShare Gallery, which has about 30 million...

CAVUTO: Right.

STEWART: ... members. And, then, you can get — take home — look at these cards. I brought you some.

CAVUTO: Oh, that's so nice that you brought some. All right. All right.

STEWART: Yes, beautiful little cards. These are what you're going to get sent back to you from the gallery. They're fine quality.

CAVUTO: But are people doing more of this kind of stuff, or thinking of doing this kind of cocooning stuff because times are anxious?

STEWART: It seems like everybody has a digital camera. Everybody wants a craft room. Everybody wants to cook.

Our little food magazine called "Everyday Food," it is just burgeoning and with interest, so many readers. It's that digest size. You just stick it in your pocket at the grocery store. You can read a recipe, buy the food for that night.

CAVUTO: This upward trajectory for you, Martha, has actually come in the face of escalating violence in Iraq, now the Middle East violence. And there's a theory out there that says, when people get scared, they focus on their homes.

STEWART: Well, I hope that that's not the only reason. And I certainly hope that we have some resolution in the Mideast, because it frightens me too. I wake up every day a little uneasy about that, just because I just feel so sorry for all those people.

But I do think that our business does not depend on oil, thank heavens. It doesn't depend on you, you know, spending a lot of money on a lot of different things.

CAVUTO: You're into comfort. You're into making people feel comfortable.

STEWART: Yes, comfortable and live better.

CAVUTO: Right.

STEWART: Live better.

CAVUTO: Now, you got the deal KB Home.

STEWART: Oh, yes.

CAVUTO: I have another issue with that, that maybe what is going on here is, people will focus on the home, will focus more on it. So, contrary to a lot of the economists, who generally get everything wrong, what's going on is, people do want to focus more.

STEWART: Yes. And we want to help people when they do focus on their home, for example. We want to help them with ideas, with inspiration, with how-to. That's why we have our television show. That's why we have all our magazines.

"Blueprint," our newest magazine — I just brought a copy for you — this focuses on the younger demographic, 25 to 45. It says right here, "Design your life." So, we want you to use your ideas, but we want to show you how you can use your ideas.

CAVUTO: So, let's go back to the economists, who talk about housing stinks now; the market is going to go the other way.

STEWART: But that might be interest rates, too.

CAVUTO: Yes.

STEWART: You know, housing — that always happens. Interest rates go up. Mortgages — people get a little bit jittery. And then they start to buy again, when they see good value.

These KB homes, I must tell you, are the best value.

CAVUTO: What's the Martha Stewart stamp on these homes?

STEWART: Well, we're imposing a lot of wonderful designs on these homes, a lot of wonderful alternatives inside the homes.

CAVUTO: But what do I get that's undeniably Martha?

STEWART: OK. You get special paneling in the houses, wanes coating, wonderful paneled hallways. You get lots of windows, larger windows than ever before.

CAVUTO: You like light, don't you?

STEWART: I do. I like light.

CAVUTO: Right.

STEWART: And I like to see outside, as well as having the light come in.

You get wonderful decorating ideas. You get larger closets, laundry rooms that are useful and utilitarian.

CAVUTO: And all this for between $200,000 and $400,000 in Atlanta.

STEWART: Oh, my gosh. It's just incredible.

CAVUTO: How are they doing that?

STEWART: Well, we have already sold some houses I have been told.

CAVUTO: Yes.

STEWART: And we have 800 to sell in this particular beautiful community, with wonderful rolling hills, streams, big trees, mature trees. They respect the terrain. They don't come in and just level everything.

And, so, KB does the building. We're doing a lot of the designing. And we show them furnished with all our products. So, ultimately, my dream is to sell the houses all furnished, walk in...

CAVUTO: You're just going ka-ching, ka-ching.

STEWART: Yes, yes, yes.

CAVUTO: I know this is a personal-type question, but do you feel that your success is nice revenge?

STEWART: I don't think about revenge. I don't think about getting even. I don't think about those things.

CAVUTO: Just a little bit?

STEWART: No, no, no, no, no.

CAVUTO: A little bit? Really?

STEWART: Because I always knew we had a wonderful, strong business, and we had a clean, excellent business.

My problem had nothing to do with my company and nothing to do with the people who work there, so, that it was very — I think it was just unfair, an unfair result of my particular problem, that my company and my employees had to suffer.

So, now that's over. Everybody is much happier. We're back to work as usual. And we are creating some of the most beautiful lifestyle stuff that anybody will ever see. Look for Macy's next year. Look for all our products. And please go to the Kodak EasyShare and MarthaStewart.com. You're going to get great ideas.

CAVUTO: No one markets like you, Martha. All right. Good.

STEWART: They're all here.

CAVUTO: Very good. Yes, I see that. I see that.

STEWART: And the home keeping book, don't forget that.

CAVUTO: I see you got that. All right. All right. Martha Stewart, doing very well…

STEWART: Thank you.

CAVUTO: ...maybe in times that would indicate you wouldn't. But she is. All right.

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