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Martha Stewart's new commitment from JCPenney: $50 million

martha windowNew York - Martha Stewart Living Omnimedia executives this morning offered a few details about its revised contract with JCPenney, along with the impact of the narrowed arrangment on the company's revenues, and indicated the new deal may help resolve Macy's lawsuit over the matter.
Under the latest agreement, JCPenney has guaranteed $50 million in revenue to MSLO over a period of four and a half years, executive vp and cfo Ken West said during today's third quarter conference call with investors. The original contract, announced in late 2011, was to have generated $200 million for Omnimedia.
MSLO will continue to design branded project for JCPenney in window treatments, window hardware, lighting, rugs, holiday and "Celebrations" - largely paper party goods. Dropped are categories such as bedding, bath, kitchenware, cookware and tabletop - all of which Macy's claims as exclusives under its contract with Omnimedia.
The narrowed agreement allows MSLO to reduce overhead related to the original, more ambitious partnership, presumably in the form of design and development staff. "The [merchandise] segment had to absorb these expenses for the first half of the year," said West.
Omnimedia credited Penney royalties with boosting third quarter merchandising revenue 7% to $14.2 million. With a new agreement now in place, fourth quarter merchandising revenues are likely to be flat year-over-year, said West.
The restructured deal also impacts revenue in MSLO's publishing division as Penney has cut back its advertising commitment in support of its Martha Stewart exclusives.
New MSLO ceo Daniel Dienst, on his second day in the position, said it's time to get past "noisy litigation," an apparent reference to the Macy's lawsuit. "We should be growing with our partners, not litigating with them."
Asked by an analyst how the company's other retail partnerships are faring, West said they are performing "as expected." In addition, to Macy's and JCPenney, Omnimedia also has merchandise exclusives with The Home Depot, Staples (together with Avery), PetSmart, Michaels and Jo-Ann Fabric & Craft Stores.
Once again, the merchandising division was the only one running in the black during the quarter, with operating income up 12% to $9.5 million.
Total company revenues for the quarter ended Sept. 30 fell 22.3% to $33.8 million. Net loss narrowed to $4.3 million from a net loss of $50.9 million in the year-ago quarter.
Deinst said he plans to put operations on a more cost-effective footing and will be making "tough decisions" in order to "run this thing like a business."
He said the brand has "a tremendous reserve base," and added: "There's an opportunity to write the second chapter of one of the greatest business stories ever told - the Martha Stewart story."

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