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Martha Second-Quarter Results as Expected

As the second anniversary of the Martha Stewart Collection at Macy's approaches, brand owner Martha Stewart Living Omnimedia still isn't providing hard numbers about the exclusive program's revenue and profit contributions to its merchandising portfolio. But during its second quarter earnings conference call earlier this month, the company said the line “continues to be a top performer at Macy's,” with some bath and bedding items among the highlights.

Robin Marino, president and ceo of merchandising, added: “Consumers are returning to home and cocooning, as evidenced by the popularity of our cookware, enamel cast iron, bake ware, bath towels and moderate bedding programs.”

Nonetheless, merchandising was singled out as among one of MSLO's poorer performing segments during the period.

“Our second quarter results were in line with expectations and reflect the broad economic environment” said Charles Koppelman, executive chairman and principal executive officer.

For the second quarter ended June 30, total company revenue tumbled 26% to $57 million, from $77.1 million in the second quarter of 2008. The company cited “the challenging print advertising and retail sales environment.” On the plus side, the company said, results benefited from strong digital advertising growth, higher broadcasting profits and reduced corporate expenses.

Merchandising revenues dipped 45% to $9 million for the second quarter, compared to $16.2 million in the same period last year.

The total operating loss for the second quarter of 2009 was $6.1 million, compared to operating income of $1.7 million for the second quarter of 2008. Included in the results is an impairment charge of $5.5 million related to an equity investment. When the impairment charge recorded in the quarter is excluded, operating loss was $600,000 for the quarter.

Net loss per share was 12 cents for the second quarter, compared to net income per share of 1 cent for the same period last year. When excluding the impairment charge, net loss per share was 2 cents for the quarter.

“Our merchandising performance in the quarter reflected a number of factors, including lower royalty revenues from Kmart, which was expected as the relationship continues to wind down,” explained Marino, adding that what also contributed to the decrease was “a significant decline in near-zero margin creative services revenue.”

A bright spot, however, was MSLO's internet business, which had “a great quarter with revenue of $4.2 million, up 28% from $3.2 million during the same period 2008,” said Kelli Turner, evp and cfo.

To address its merchandising declines, MSLO is turning its focus to what Marino described as the company's “areas of expertise.”

These include the Martha Stewart weddings franchise, she said, “which is a great example of this. We started 15 years ago with our Martha Stewart Weddings magazine, which developed a passionate following and established us as a creative leader in the space.” She said the Martha Stewart Collection at Macy's is the department store's No. 1 bridal registry brand.

In the works are several new initiatives. The company is developing a line of branded cleaning products expected to hit stores by early 2010. In the food category, MSLO plans to announce new manufacturing partners in the coming months. There is also soon-to-come news on a new, large-scale retail partnership for the Martha Stewart pets business.

In crafts, the outlook is upbeat based on recent performance and upcoming seasonal lines. “Our Martha Stewart core craft products remain very strong at Michael's and Walmart,” Marino said. “Our specialty and independent craft business is also generating strong retail results and great feedback. And we are optimistic about our new seasonal products that will be shipping to stores in Q3 and Q4.”

International expansion is another area MSLO is exploring to rev up its merchandising business. To date, the crafts segment is carried in seven countries abroad — Australia, Japan, United Kingdom, Brazil, Germany, The Netherlands and Singapore.

“And we're working on expanding other product categories internationally,” Marino said.

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