Martha Q1 not a good thing

Joan Gunin, Don Hogsett, May 5, 2003

With a federal investigation casting a long shadow over the reputation and business operation of designer and tastemaker Martha Stewart, her company, Martha Stewart Living Omnimedia, recorded a first-quarter loss of $4.5 million, a second straight quarterly deficit.

Reflecting a widespread downturn in the American publishing and magazine business, circulation and revenues in the magazines that bear her name fell by more than 20 percent, pushing the parent company's sales down by 14.6 percent, to $58.0 million from $68.0 million last year.

Under scrutiny by the Securities and Exchange Commission for possible insider stock trading after she sold stock in ImClone Systems Inc., Stewart acknowledged, "Our business results reflect considerable pressure associated with the continuing governmental investigations of my sale of non-company stock."

Sales slid across the board in each of her company's divisions, with the magazine business the hardest hit:

  • Publishing: sales dropped off by 21.0 percent, to $34.1 million from $43.1 million;

  • Merchandising: including licensing revenues from Kmart, fell by 6.7 percent, to $10.3 million from $11.1 million;

  • Television: revenues were off by 1.4 percent, to $6.6 million from $6.7 million;

  • Internet/direct commerce: Sales were virtually flat, edging off by 0.8 percent, to $7.0 million from $7.1 million.

The deep, double-digit slide in sales had a punishing effect on margins, which contracted to 38.6 percent from 45.9 percent the prior year. The slide in sales drove operating costs sharply higher, when measured as a percentage of sales, to 47.9 percent from 32.9 percent the preceding year.

Given the current weakness in its publishing business, the company tightly controlled production, distribution and editorial costs, which declined by 3.1 percent, to $35.6 million from $36.8 million. But selling, promotion and general operating costs all climbed higher by more than 20 percent.

Pulled apart by falling margins and rising costs, the company posted an operating loss of $7.5 million, compared with a year-before profit of $5.8 million.

Providing some relief to the bottom line, the company recorded an income-tax benefit, stemming from prior losses, of $2.8 million vs. a year-ago tax payment of $2.6 million.

With the economy in the doldrums, and her reputation still under a cloud, James Follo, the company's cfo, said the company expects to record a further loss during the second quarter of $0.03 to $0.05 a share.

Martha Stewart Living Omnimedia Inc.

Qtr. 3/31 (x000) 2003 2002 % change
a-First-quarter results include an income-tax benefit of $2.8 million, compared with an income-tax provision of $2.6 million last year; and a $221,000 loss from discontinued operations, compared with a loss of $825,000 the prior year. Prior-year results include a $3.1 million charge stemming from a change in accounting.
Sales $58,022 $67,959 -14.6
Oper. income (EBIT) (7,539) 5,831
Net income (4,509)a (234)a
Per share (diluted) (0.09) (0.00)
Average gross margin 38.6% 45.9%
SG&A expenses 47.9% 32.9%

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