• Daphne Garland-McLean

Despite losses, MSO sees bright Q4

With sales off by 28 percent and hurt by weakness in its magazine division, Martha Stewart Living Omnimedia posted a third-quarter loss of $3.8 million vs. a prior-year profit of $2.8 million.

But the loss was smaller than Wall Street expected — $0.08 a share vs. a consensus forecast of a $0.14 deficit — and investors were further cheered when the company forecast a strong fourth quarter and a return to profitability. As a result, the company's share price rose 7.7 percent, or $0.77 a share, to $10.76, in mid-day trading Oct. 30, the day the news was reported.

But it was still a third straight quarter of disappointing results as the company coped with the legal problems of former ceo Martha Stewart and the shutdown of hundreds of Kmart stores, a significant outlet for her home furnishings.

Sales at MSO declined by 27.8 percent, to $51.2 million from $70.9 million last year. Hardest hit was the publishing division, where sales tumbled 37.3 percent, to $29.1 million from $46.5 million.

Merchandising revenues — including Kmart royalties — declined by 12.0 percent, to $8.9 million from $10.1 million, a smaller hit than might have been expected given the closing of so many Kmart units.

The relatively small decline reflected consistently strong sales of Martha branded product at Kmart coupled with a higher royalty rate and the successful launch of a Martha Stewart Signature line of furniture.

Martha Stewart Living Omnimedia

Qtr. 9/30 (x000) 2003 2002 % chg
a-Third-quarter results include interest income of $293,000, compared with $545,000 last year; an income-tax benefit of $2.2 million, compared with a prior-year tax provision of $2.1 million; a $122,000 loss from a discontinued operation, compared with a year-before loss of $197,000. Nine-month results include interest income of $1.1 million, compared with $1.6 million last year; an income-tax benefit of $4.4 million, compared with a year-before tax provision of $10.2 million; and a $644,000 loss from discontinued operations vs. a prior-year loss of $2.3 million. The prior-year nine-month period included a $3.1 million after-tax, non-cash charge stemming from a change in accounting.
Sales $51,180 $70,931 -27.8
Oper. income (EBIT) (4,295) 7,316
Net income (3,840)a 2,765a
Per share (diluted) (0.08) (0.06)
Average gross margin 39.0% 45.2%
SG&A expenses 47.4% 34.9%
nine months 2003 2002 % chg
Sales 174,986 217,492 -19.5
Oper. income (EBIT) (6,134) 32,361
Net income (7,415)a 9,270a
Per share (diluted) (0.15) 0.19
Average gross margin 57.9% 52.9%
SG&A expenses 45.6% 32.2%

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