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Merchandising business buoys MSLO's otherwise challenged Q3 results

New York - Martha Stewart Living Omnimedia saw its merchandising segment grow by 7.2% in revenues in the third quarter, thanks mainly to design fees from JCPenney as well as strong sales growth in its home office line with Avery.

During the company's earnings call this morning, president and ceo Lisa Gersh said MSLO's merchandising business "continued to see solid growth...Our design work with JCPenney is on track, and JCPenney expects to launch [the Martha Stewart program] in stores in spring 2013."

MSLO's quarterly merchandising revenues came in at $13.2 million compared to $12.3 million last year, and operating income rose 18% to $8.5 million versus $7.2 million.

Offsetting some of the growth within merchandising was "continued softness" in sales for its products at The Home Depot, particularly in soft flooring products. This decline is still being experience in the back-half of this year, noted Ken West, cfo of MSLO.

An analyst on the call inquired for updates related to the legal battle between MSLO and Macy's, which currently carries the Martha Stewart Collection across multiple home categories from linens to culinary goods. But Gersh said there were none to report other than what is available on public record.

Higher merchandising revenues could not fully offset the MSLO's lower revenues in the publishing and broadcasting segments over the quarter. As a result, the company's total revenues sank 17% to $43.5 million from the year-ago's $52.2 million.

To remedy this, the company announced on Thursday new actions it has taken to further restructure its portfolio of popular media brands, including transitioning Everyday Food from a print publication to a digitally-focused brand and exiting Whole Living altogether.

Ongoing softness in its publishing business was also the culprit of MSLO's total operating loss for the third quarter, which rose to $(50.7) million, compared to an operating loss of $(9.3) million.

Basic and diluted net loss per share was $(0.76) for the quarter, versus $(0.18) year ago. Excluding the impairment charge and restructuring charges in the third quarter of 2012, and excluding restructuring charges in the third quarter of 2011, net loss per share was $(0.09) and $(0.11), respectively.

"Our performance in the quarter was in line with our expectations but not our ambitions for the company," Gersh explained. "Including the [recent] publishing segment actions... we have taken actions designed to significantly reduce the cost structure of our print and broadcasting operations this year, an important step toward positioning MSLO for profitable growth. We are transitioning our content operations to digital, mobile and video platforms that feature lower fixed costs and align with evolving consumer preferences for how and where they engage with our content. We are seeing some encouraging early results, particularly in video. In the meantime, our merchandising business continues to generate attractive growth. Overall we believe we have made significant progress in executing our strategy and anticipate that we will begin to deliver the bottom-line benefits of this work in 2013."

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