|Martha Stewart in her TV studio kitchen.
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EARNINGS AT MARTHA STEWART'S OMNIMEDIA PLUMMET 42%
Impact of Stock Trading Scandal Cited
SEC TO FILE FRAUD CHARGES AGAINST MARTHA STEWART
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The company, which produces TV shows, magazines and a line of household products sold through retailer Kmart Corp., posted a net loss of $2 million in the fourth quarter of 2002, compared with net income of $5.7 million in the year-ago period, partly due to a $7.7 million charge to cover restructuring costs at its Internet/catalog retail business. For the year, Omnimedia posted a 66.8% drop in net income to $7.3 million, despite a 2.2% increase in revenue, to $295 million.
Ms. Stewart is being investigated for selling 4,000 shares of Imclone Systems in December 2001. While she has not been formally charged with any crimes, the Securities and Exchange Commission in October said it would recommend filing civil securities fraud charges against her.
In a conference call with analysts today, executives said for the first quarter publishing revenues at Martha Stewart Living magazine are expected to drop 20% as ad pages shrink about 25%.
TV revenue down 33.4%
Publishing revenue was flat in the fourth quarter, though Martha Stewart Living saw a 3% increase in ad revenue. TV revenue dropped 33.4% in the quarter due to the cancellation of Ms. Stewart's annual prime-time network holiday special due to cost reasons and the uncertainty of her legal situation.
"So long as the investigation is ongoing, our business segments will be negatively impacted," Ms. Stewart said, adding that she is "increasingly hopeful" the situation will be resolved shortly.
Advertisers hold off
The investigation has hurt publishing ad revenues, as some advertisers continue to hold off on their 2003 schedules, said Sharon Patrick, Omnimedia's president and chief operating officer. That effect will be more pronounced in 2003, she added.
Chief Financial Officer James Follo forecast the first-quarter publishing revenue will drop 20% from a year ago due to fewer ad pages, which will drop about 25%, as well as lower newsstand sales and lower subscriber revenue. Earnings before interest, taxes, depreciation and amortization, or Ebitda, will drop 60% for the segment, while TV revenue and Ebitda will remain unchanged for the first quarter, Mr. Follo said.