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Stewart Shockwaves Batter Omnimedia

With sales falling almost 25 percent, and costs climbing sharply even as business contracts, Martha Stewart Living Omnimedia reported a worsening third quarter loss of $15 million, almost four times the size of a year-ago deficit of $3.9 million.

In the continued wake of bad publicity following Stewart's trial, conviction and imprisonment, sales at her namesake company plunged 24.4 percent, to $38.7 million from $51.2 million last year.

But while Stewart's television show was yanked from the air, sending television revenues plunging 66.5 percent; and ad sales tumbling in her various magazines 23.6 percent; the name still has considerable drawing power when it comes to selling product. Martha Stewart Everyday product at Kmart still had considerable traction, and merchandising revenues, including royalties from Kmart, slipped at a more modest pace of 9.5 percent, to $8 million from $8.9 million, on somewhat lower Kmart sales.

Providing a lift to merchandising revenues was the growing strength of the Bernhardt furniture line, with 43 new skus added to the signature line.

Stewart's tarnished reputation did little to hurt her Internet and direct commerce sales, which were off a modest 6.1 percent, to $6.2 million from $6.5 million.

Hardest hit in terms of raw dollars by Stewart's fall from grace was advertising revenue in her portfolio of magazines, which fell 23.6 percent, to $22.3 million from $29.1 million.

Revenues from the smaller television operation skidded 66.5 percent, to $2.2 million from $6.6 million.

Even though sales tumbled sharply, operating costs still climbed during the third quarter as the company plans for life after Stewart's release from prison sometime early next year. Measured as a percentage of sharply declining sales, costs shot up to 64.9 percent from 42.7 percent a year ago. In raw dollars, costs climbed 10.3 percent, to $82.5 million from $74.7 million last year.

Sharon Patrick, president and CEO, said the company's “circumstances and performance would begin to improve once Martha Stewart's personal legal situation reached closure.” With Stewart's decision to enter prison early, “We are becoming increasingly more optimistic about the prospects of an advertising recovery in 2005.”

In addition, the company began to prepare for new television programs next year, including a prime time series with television impresario Mark Burnett, a pioneer of reality TV with his ongoing series, “Survivor” and “The Apprentice.”

Martha Stewart Living

Qtr. 9/30 (x000) 2004 2003 % change
(loss)
a-Third quarter results include a non-cash charge of $991,000 for amortization of stock compensation expense, compared with $143,000 during the same period a year ago; $511,000 in interest income, compared with $293,000 last year; an income-tax benefit of $806,000, compared with $2.2 million last year; and a $129,000 after-tax loss from discontinued operations.
b-Nine-month results include a $3.5 million non-cash charge for amortization of stock compensation expense, compared with $410,000 last year; $1.2 million in interest income, compared with $1.1 million a year ago; an income-tax benefit of $2.5 million, compared with a prior-year tax payment of $3.1 million; and a $417,000 after-tax loss from discontinued operations, compared with a $644,000 loss the year before.
Sales $38,691 $51,180 -24.4
Oper. Income (EBIT) (16,154) (6,281) --
Net income (14,966)a (3,938)a --
Per share (diluted) (0.30) (0.08) --
Average gross margin 29.2% 38.6% --
SG&A expenses 64.1% 46.9% --
Nine Months
Sales $127,226 $174,986 -27.3
Oper. Income (EBIT) (50,519) (8,669) --
Net income (52,270)b (5,143)b --
Per share (diluted) (1.05) (0.09) --
Average gross margin 31.8% 41.4% --
SG&A expenses 64.9% 42.7% --


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