MARTHA STEWART COMPANY POSTS FIRST FULL-YEAR LOSS

Trial Shadows Earnings Report; 'Contingency Plans' Being Reviewed

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NEW YORK (AdAge.com) -- Martha Stewart Omnimedia today reported its first full-year loss but posted better than expected fourth-quarter earnings as the company's founder awaits
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the outcome of jury deliberations in her trial.

The company beat its guidance for the fourth quarter, posting net income of $4.6 million on revenues of $70.9 million. Revenues were down 8.6% from the year-ago period, but the company posted a net loss of $3.4 million in that period. For full-year 2003, the company posted a net loss of $2.8 million on revenues of $245.8 million. Total company revenue declined 16.7% from the pervious year's results.

Trial's inescapable shadow
Martha Stewart Omnimedia's chief financial officer, James Follo, started out today's earnings call with investors by stressing the company would not speculate on the outcome of Ms. Stewart's legal situation. But the trial, which today entered its second day of jury deliberations, still cast an inescapable shadow, coloring all results and affecting all conceivable future possibilities.

In mid-afternoon trading, Martha Stewart Omnimedia's stock was down 38 cents to $14.08. The stock has rallied during the trial, as investors anticipated a possible acquittal or, at least, an end to a long period of uncertainty concerning Ms. Stewart's legal fate.

CEO Sharon Patrick sought to put the best face on the company's situation. "The brand, while under intense pressure, remains resilient," she said. However, the first example she employed to demonstrate the brand's strength with consumers was that newsstand circulation of Martha Stewart Living, the company's flagship title, posted a decline slightly smaller than the rest of the magazine industry.

Cash on hand
She and Mr. Follo repeatedly stressed that the company was debt-free and had $169 million cash on hand at year-end.

Without elaborating, Ms. Patrick said that the company had been studying "contingency" plans to implement following the trial, but she warned that, in some cases, such plans "may require a period of several months to fully complete and execute."

"We fervently hope for exoneration" of Ms. Stewart, Ms. Patrick said, but "our assets place us in a good position" no matter what the legal outcome is.

Yet those assets have taken a serious beating. Mr. Follo said during the question-and-answer period that ad pages in its publishing segment -- which accounts for more than half of the company's revenues -- declined 40% in the previous quarter, and that ad revenues fell even more.

Advertising issue
In response to a question concerning how quickly advertisers could return should they elect to, Mr. Follo conceded that the vagaries of set ad schedules made it hard to tell specifically. "There's reason to assume we would see a rebound in advertising," he said, but quickly added that "the rebound might be delayed into the following year."

Revenues at the company's merchandising segment virtually doubled in the final quarter of 2003 to $22.5 million. But last month the company was sued by longtime retail partner Kmart, in a dispute over royalty payments.

Mr. Follo forecast a 20-cents-per-share loss on revenues of $45 million for the first quarter of 2004, which, according to publisher reports, exceeds analysts' consensus. He cited "significantly reduced" ad revenue from the flagship magazine, and increased losses at new launch Everyday Food owing to higher subscription acquisition costs. He also expected an operating loss of about $2.2 million in the company's TV segment due to lower licensing fees.

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