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Kmart Wind-down Hits MSLO Results

Company Hints at New Mass Partner for 2010

As the Martha Stewart Everyday home program phases out at Kmart, Martha Stewart Living Omnimedia's merchandising division took a $5 million haircut in the first quarter.

Merchandising sales fell 32% to $8.9 million for the quarter ended March 31. The $5 million shortfall included both diminished sales and smaller royalty guarantees at Kmart, evp/cfo Kelli Turner told analysts during the company's quarterly conference call last week. The division posted an operating loss of $1.8 million vs. operating income of $6.6 million in last year's first quarter.

Robin Marino, president and ceo of merchandising, described 2009 as "the end of an era," but said the MSLO merchandise team is working on products for a new mass market retail alliance next year.

She declined to provide specifics or to confirm a deal had already been reached, but said: "We expect to be ready for a seamless transition into 2010."

Kmart must liquidate its exclusive Martha Stewart Everyday inventory by the end of January 2010.

Absent the Kmart business, the merchandising sector grew 18% during the quarter, boosting in part by the exclusive Martha Stewart Collection at Macy's.

"It has become Macy's largest volume brand in its home business," said Marino. "We'll expand our presence there accordingly."

Best sellers in the first quarter were gadgets, cookware and bake ware, the company said in its quarterly financial statement.

Total corporate revenues fell 26% to $50.4 million. MSLO reported a net loss of $16.8 million, or 31 cents per share, vs. a net loss of $4.2 million, or 8 cents per share, in the year-ago period.

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