Martha Stewart Company Bounces Back Further

Ad Pages Gain But Still Fall Short of Glory Days

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This story has been updated to include first-quarter earnings, released midday.

NEW YORK ( -- With every new business venture -- like the just released test issue of Blueprint, a magazine for young homeowners -- and each new quarter's financial results, Martha Stewart's company shows every sign of rebounding from the dark days of her imprisonment. But what if she had never been convicted, as she was in March 2004, for obstructing justice and lying to prosecutors?
Martha Stewart company's dark days appear to be receding.
Martha Stewart company's dark days appear to be receding. Credit: AP

Today Martha Stewart Living Omnimedia is collecting revenue from its Martha Stewart Living Radio channel on Sirius Satellite Radio, building up its Internet operations, casting eyes overseas, planning home accessories to sell in Macy's and, most recently, announcing a new line of Martha Stewart-branded rugs.

15-cent share loss estimated
Before today's release of first-quarter financials, analysts said they expected the company to show new improvement, even though their consensus estimate called for a loss of 15 cents per share, according to Thomson Financial. Last year's first quarter, after all, produced a 37-cent loss.

"The publishing division appears to have bounced off the inflection point, and could continue to post impressive advertising growth (double-digits) over the next 12 months, albeit off very depressed levels," said William Drewry, a Credit Suisse First Boston.

As expected, Martha Stewart's company reported a first-quarter loss this morning, but continued to show signs of improvements across many fronts, particularly the publishing unit.

When a smattering of recent, closely watched metrics are contrasted with past performance, Martha Stewart Living Omnimedia seems to have some revival yet ahead.

Performance markers
Television Ratings: In the glory days of its 1996-97 season, Ms. Stewart's eponymous syndicated TV show pulled in viewers in nearly 4 million homes, according to Nielsen Media Research. Her post-incarceration version of this program is grabbing almost 2 million homes.
MSLO has just released the test issue for 'Blueprint,' a title for young homeowners.
MSLO has just released the test issue for 'Blueprint,' a title for young homeowners.

Ad Pages: Martha Stewart Living has been on the warpath lately, notching about 138 ad pages during the first quarter of 2006, an 80.9% increase over the first quarter a year before, according to the Publishers Information Bureau. And for all of 2005, the magazine printed almost 659 ad pages, 38.2% more than in 2004. But pre-prison? The title ran 1,234 ad pages in 2003; 1,887 ad pages in 2002; and 1,790 in 2001. Then again, Martha Stewart Living Omnimedia publishes magazines that didn't exist in the old days, and not just Blueprint. Now there's also Everyday Food, for example, which ran nearly 435 ad pages last year and looks likely to have plenty of growth ahead; its first-quarter ad pages this year doubled its ad pages in first-quarter 2005.

Income:By perhaps the most basic measure, Martha Stewart Living Omnimedia definitely has ground to make up. One month before a jury found Ms. Stewart guilty, the company reported that it had lost $6.3 million during 2003 -- but discounting restructuring charges, its operating income would have totaled $27.7 million instead. Last year, it turned in a fourth-quarter profit of $2.9 million, breaking a red streak of seven quarterly losses that went all the way back to her conviction. For all of 2005, however, the company lost more than $78 million.

First-quarter report
First-quarter revenue at Martha Stewart Living Omnimedia grew 60% to $61.8 million; its operating loss totaled $7.7 million, less than half the $19.8 million operating loss reported in first-quarter 2005. The loss per share was 13 cents for the first quarter of 2006, better than analysts' consensus of 15 cents, and much better than last year's first-quarter loss of 37 cents.

During a conference call today, President-CEO Susan Lyne said she believed Martha Stewart Living was taking share from Time Inc.'s Real Simple, Hearst Magazines' O, the Oprah Magazine and other home and lifestyle books. "This has been a relatively flat advertising quarter for the industry as a whole but it's been extremely robust for us," she said.

The publishing division, home to magazines such as Martha Stewart Living and Everyday Food, expanded revenue by 43% to reach $36.3 million. It reported an operating loss, but only barely: $100,000, even after investing $1.1 million to staff Blueprint. The first quarter of 2005, in contrast, produced an operating loss of $8.7 million.

Broadcasting turned in a similar performance, reporting revenue of $11.3 million, up from $800,000 in the first quarter last year on the addition of revenue from the "Martha" syndicated TV show and the Martha Stewart Living Radio channel on Sirius. The unit's operating loss was $300,000, better than a $2.3 million loss in the year-ago period.

TV show not delivering ratings
The "Martha" show has not delivered the ratings that the company had expected, however, and is not a profit center either. Asked about improving the show's profitability, Ms. Lyne said some expenses have been cut and that she hoped the show would attract more viewers in its second year.

"But what is important is that it is a significant driver for the rest of our businesses," Ms. Lyne added, citing growing Web traffic and single-copy magazine sales as examples. Merchandising, which grew revenue and operating income, should benefit as well as it continues to expand.

The only division to report smaller revenue than it did in year-ago period was the Internet unit. But last year the Web business still included revenue from the company's online-retail model, which it has abandoned. The division broke even in terms of operating income, an improvement over a $1.5 million loss in the quarter a year before.

Looking ahead, the company said it expects significant year-over-year improvements in operating results in the second quarter and for the full year. It anticipates full-year revenue of $270 million to $280 million, up from last year's revenue of $209.5 million.
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