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MARTHA STEWART CO. LOSSES DOUBLED IN SECOND QUARTER

But Ad Pages and Rate Base Are Up For 'Martha Stewart Living'

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NEW YORK (AdAge.com) -- Though company losses almost doubled for the second quarter, Martha Stewart Living Omnimedia showed signs that advertisers and readers are slowly returning to its flagship magazine Martha Stewart Living.
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In a second-quarter earnings call with analysts this week, the company said that starting in January, it will raise the rate base of Living from 1.8 million to 1.9 million. Ad pages for the quarter were up 42% while sibling Everyday Food saw ad pages up by 65% for the period. Publishing segment revenues were up 34% to $31.7 million, though operating losses were $3.3 million for the quarter compared with operating losses of $3.9 million for second quarter 2004.

Losses doubled
Overall, MSLO saw losses widen to $34.2 million compared with $17.8 million in the prior period. The company also took a $16.8 million non-cash charge relating to warrants held by TV producer Mark Burnett, who is working with company founder Martha Stewart on a new syndicated show, titled Martha.

Mr. Burnett, who was hired as a consultant to the company in September 2004, was granted 2.5 million shares of Class A stock at an exercise price of $12.59. Today that would make his warrants worth $37 million at the current stock price of $28. The warrants vest and become exercisable in various quarters and are tied to among other things ratings of the The Apprentice: Martha Stewart and Martha. The first third of those warrants vested in the second quarter.

TV segment down 40%
TV segment revenues were down 40% to $1.8 million for the second quarter. The decline was due to comparisons with last year, when the syndicated TV show Martha Stewart Living was still on air. Operating losses jumped from $3 million to $20 million in the TV segment.

Sales of Martha Stewart-branded goods at Kmart were mixed, according to MSLO CEO Susan Lyne, who said sales of garden wares and outdoor furniture were doing well, while home ranges were pacing alongside Kmart’s overall sales trends, which were down. The company is currently in the midst of negotiations with Kmart over its merchandising agreement with the company.

James Follo, chief financial and administrative officer, said MSLO expected third-quarter losses to be $12 million to $13 million, followed by a fourth-quarter profit of $11 million to $12 million.

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