Martha Stewart's Brand Faces Uncertain Future

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The jury verdict in Martha Stewart's trial will do more than determine the future of the doyenne of style — it could also seal the fate of her multimedia company.

Analysts say anything short of a full acquittal on charges she lied to prosecutors in a 2001 stock sale could further damage Martha Stewart Living Omnimedia Inc. And even if the namesake founder and former CEO is found innocent, the brand stamped on products from bed sheets to magazines will have a hard time reclaiming the cachet it once had, some observers say.

"There are many variables here, and no one has the crystal ball for the outcome for the brand," said Seth Siegel (search), co-founder of The Beanstalk Group, a trademark licensing agency.

The good news is that the company has enough cash to withstand several quarters of declining advertising revenue, Siegel and others said.

Dennis McAlpine (search), managing partner of McAlpine Associates, a research firm, believes that even if Stewart is found innocent, "the brand will go into a slow decline."

"I don't think she will get the luster back she used to have," he said.

Shares have soared almost 30 percent in recent weeks on the New York Stock Exchange as some investors speculate that Stewart will be acquitted. However, the stock is still down almost 40 percent since June 2002, when news surfaced that Stewart was tied to the ImClone Systems Inc. insider trading scandal. The company also has struggled with skittish advertisers, slumping sales and quarterly losses.

The company hit its lowest point in June, when Stewart stepped down as CEO and chairman hours after she was indicted for allegedly lying to federal investigators probing her December 2001 sale of ImClone shares. That stock was sold a day before a negative government report sent its price plummeting.

In October, Martha Stewart Living reported a loss and a 28 percent drop in revenue for its third quarter and said advertising revenue would remain depressed early this year.

But Stewart has held on to loyal customers, and her major retail and manufacturing partners have stuck by her.

"Now, I go out of my way to look for Martha Stewart things," said Julieta Gonzalez, 52, of Tucson, Ariz. "It's an act of support."

Kmart said its Martha Stewart Everyday line continues to be a top seller, although it's been hurt by the discounter's closing of hundreds of stores.

Sears Canada reports strong sales. "Our customers have definitely been able to separate out any legal issues from how they feel about the line," said Vincent Power, a spokesman for Sears Canada.

Bernhardt Furniture Co. calls its recently launched furniture collections under the Martha Stewart brand the most successful in its 114-year-history. The company's CEO, G. Alex Bernhardt Sr., said that whatever the trial's outcome, it would continue its relationship with Stewart's company.

Still, while merchandising sales have held up well, and quality of the products has remained high, consumers' trust in the brand has eroded, according to Robert Passikoff, president of Brand Keys, a marketing research firm that produces a consumer loyalty index.

Martha Stewart Living executives have voiced their support for Stewart, while moving ahead with projects that don't bear her name. The company added Everyday Food — its first magazine not to carry her name — and a TV show called "Petkeeping with Marc Morrone," both of which have been well received by advertisers and consumers. Executives say the strategy was in place before Stewart's troubles began.

Still, as company spokeswoman Elizabeth Estroff said: "Martha continues, on the creative front, to be as industrious as ever."

Analysts say the big worry is with the publishing division, which accounted for 62 percent of the company's total revenue of $295 million in fiscal 2002. Ad pages were down 39 percent at its flagship Martha Stewart Living magazine in the third quarter from a year ago.

Estroff would not comment on the trial or the company's backup plans.

McAlpine said that if Stewart serves a jail term, the company could very well change the name of its flagship magazine and syndicated TV show. But if she is exonerated, or convicted without having to serve time in prison, he expects her to remain involved in the company.

"She's no shrinking violet," McAlpine said.