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Martha Stewart sets stage for profitability

New York – Strong fourth-quarter results helped Martha Stewart Living Omnimedia (MSLO) shrink its 2006 full-year operating loss to $2.8 million, down from the 2005 operating loss of $78.3 million, the company noted in its conference call to analysts today.

MSLO president and ceo Susan Lyne noted, "Our 2006 results came in ahead of our guidance even with additional investment in key initiatives like [recently launched magazine] Blueprint and our marthastewart.com website.”

Fourth-quarter revenues were $97.0 million, up 15% from $84.6 million for the same period one year ago. Full-year revenues rose 36% to $288.3 million, compared to $212.4 million in 2005.

The merchandising division is in transition, with major new programs launching this year, including the Martha Stewart Collection exclusive home furnishings program at Macy’s, set for a late summer debut. “Home is a $4 billion business at Macy’s,” said MSLO cfo Howard Hochhauser, adding the company’s target is to account for 10% of that, or $400 million in retail sales.

Hochhauser said Martha Stewart Everyday revenues at Kmart were about $900 million in 2006, with “some weakness in soft home” which will be addressed with the relaunch of “a substantial amount of product” for fall 2007.

Hochhauser said he expects the combined effect of the Macy’s launch and Kmart reset to yield a bigger fourth-quarter 2007 royalty flow. Overall, he projected merchandising revenue to rise “approximately 20%” in 2007 over 2006. Related components include: interior and exterior paint at home improvement chain Lowe’s (April launch); crafts and storage at 900-store Michaels (May launch); and the growing furniture program with Bernhardt, distribution of which includes 67 Macy’s Furniture Gallery locations, Lyne noted.

With new and growing investments in branded publishing and broadcast media, the company has begun concentrating on integrated advertising sales and product placement -- and will launch its enhanced website next month.

Hochhauser set the following guidance on a consolidated basis for 2007: revenues $330 million to $340 million; operating income $5.5 million to $8.5 million, adjusted EBITDA $32.0 million to $35.0 million.

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