I think it's betting on acquital
Buy the rumor, sell the news?
Might be worth a little gamble
(COMTEX) B: Martha Stewart Living slated to report results that show conti
ued troubles ( AP WorldStream )
B: Martha Stewart Living slated to report results that show continued troubles (
AP WorldStream )
NEW YORK, Mar 03, 2004 (AP WorldStream via COMTEX) -- While the jury
deliberated the criminal case against Martha Stewart, the latest verdict in her
media empire's performance seemed more certain: Analysts expect Martha Stewart
Living Omnimedia Inc. to report its first annual loss when it releases financial
results Thursday.
The results are expected to signal a continued erosion in the overall business,
which has struggled with skittish advertisers, slumping sales and a depressed
stock since Stewart's name was tied to an insider trading scandal in June 2002.
Furthermore, whether Stewart, the former chairman and CEO, is fully acquitted on
charges she lied to investigators about a 2001 stock sale or is convicted, many
observers believe that the brand will never reclaim the cachet it once had.
"You can put your head in the sand, and ignore Martha Stewart's situation. But
with or without Martha, the company is going downhill," said Dennis McAlpine,
managing partner of the research firm McAlpine Associates, who expects to see a
contining slide in business when the company reports its results.
Steve Cohn, editor-in-chief at Media Industry Newsletter in New York, is more
optimistic, believing advertisers will return if there's an acquittal, although
he didn't expect a complete rebound. "There is definitely potential," he said.
Elizabeth Estroff, a Martha Stewart spokeswoman, said the company remains
hopeful that business "will rebound significantly" if there's an acquittal, but
it acknowledged that "in the event of a negative resolution, while achievable,
that rebound will be more difficult, take more time and require further
investment."
Last year, ad pages for the company's flagship magazine Martha Stewart Living
were down 35 percent, and the weak trend continued into this year, with ad pages
in the first quarter dropping 34 percent from the year-ago period, according to
Media Industry Newsletter.
Traffic at the company's Web site marthastewart.com declined to 1.12 million
visitors in January from 1.54 million two years ago, according to the most
recent data available from Nielsen/NetRatings, an Internet research company.
All this has taken a toll on the business. For the first nine months of the
year, ended Sept. 30, 2003, Martha Stewart Living lost $7.42 million, or 15
cents per share, compared with a profit of $9.27 million, or 19 cents per share,
a year earlier. Revenues were $175 million, down nearly 20 percent from $217.5
million in the first three quarters of 2002.
Analysts surveyed by Thomson First Call expect the company to report a loss of 7
cents for the year and anticipate a profit of 7 cents for the fourth quarter
ended Dec. 31.
While sales of its merchandise, from furniture to towels, have continued to do
well, the company has been hard hit by its publishing division, which accounts
for about 60 percent of sales.
Meanwhile, personal details about Stewart that came out of the trial - from
reports of rude phone manners to her greedy expense account habits - haven't
helped either, and sharply contrast with her perfect public image. The trial
exposed how Stewart billed her company for a $17,000 personal trip to Mexico,
for example.
"Her demeanor and personality came out in an unflattering way," said Seth
Siegel, co-founder of The Beanstalk Group, a trademark licensing agency.
Nonetheless, the stock has surprisingly enjoyed a rebound since the beginning of
the year, soaring close to 40 percent on the New York Stock Exchange, as some
investors speculated Stewart would be acquitted.
But until there's a resolution of Stewart's legal problems, company executives
remain in an awkward position. While they continue to publicly support Stewart,
they are moving ahead with projects that don't carry her name.
At the same time, executives have maintained that Stewart, who stepped down as
chairman and CEO last June but continues to serve as chief creative officer, is
still involved in the company.
If she's convicted, however, Stewart would have to resign that position.
---
On the Net:
www.kmart.com
By ANNE D'INNOCENZIO
AP Business Writer
Copyright 2004 Associated Press, All rights reserved
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KEYWORD: NEW YORK
www.marthastewart.com
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