One stock analyst compared trying to value Martha Stewart Living Omnimedia as the scandal plays out to "trying to catch a falling knife."
Ms. Stewart resigned as chairman-CEO of the company last week after pleading not guilty to federal charges of securities fraud and obstruction of justice.
With the help of crisis-PR firm Citigate Sard Verbinnen, Ms. Stewart launched a marketing plan designed to win fan support and sympathetic media coverage. She launched a Web site (marthatalks.com) and ran a full-page ad in Gannett's USA Today to state her case. But protecting her relationships with retail and media business partners will be more complicated.
"The controversy does seem to be impacting the franchise as sales at Kmart slip below guaranteed levels [meaning Kmart will make the minimum payment to MSLO] for the first time this year," wrote Kevin Gruneich of Bear Stearns in a report released just after Ms. Stewart stepped down.
The net effect, Mr. Gruneich warned, is that "trying to value Martha Stewart Living Omnimedia is like trying to catch a falling knife. ... There is little question the franchise is worth less than a year ago and less than a week ago."
A Kmart spokeswoman said marketing plans with Ms. Stewart, including commercials in which she appears, have not changed.
A spokesman for CBS, which airs the TV show "Martha Stewart Living" on many of its owned-and-operated stations, said only, "We're going to wait and see how the matter resolves itself in the courts."
Ford Motor Co. will run an ad in Martha Stewart Living magazine's July issue, but a spokeswoman for the automaker said, "We have not decided what to do after that." The publishing division, including the flagship magazine, accounts for more than half the company's total revenue.
Through a spokeswoman, Suzanne Sobel, exec VP-ad sales, did not comment on any potential pullouts and said the company was " very pleased with the reaction and support of advertisers."
Some metrics for the success of Martha-branded properties have shown serious erosion in advance of Ms. Stewart's indictment, which stems from allegations of misdeeds in her sale of ImClone stock in late December 2001. Ad pages at Martha Stewart Living declined 27.9% through April-despite comparisons to last year's weak post Sept. 11-period-and newsstand sales fell 21.8% in the last half of last year. Ms. Stewart pleaded not guilty on five counts in a US District Court in Manhattan June 4. (Read the indictment and Securities and Exchange Commission's civil complaint at AdAge.com QwikFIND aao73u.)
Sharon Patrick, the company's president-chief operating officer, replaced Ms. Stewart as CEO; board member and major shareholder Jeffrey Ubben was named chairman.
While King World Productions renewed her daily show "Martha Stewart Living" for next year, the syndicator's new daytime talk show "Living It Up! With Ali & Jack" will replace "Martha Stewart" in many valuable 9 a.m. slots, according to programming executives. (A King World spokeswoman had no comment.)
That means "Martha Stewart" in some top markets will need to be aired overnight-which will put downward pressure on ratings. Viewership of "Martha Stewart Living" for the nine months ending May 25 is 1.57 million, down from last year's 1.67 million.
contributing: jean halliday