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Martha Stewart Bullish on Merchandising

New York — While Macy’s and Martha Stewart Living Omnimedia Inc. still both decline to offer specific sales results on the lifestyle guru’s one-year-old home Collection at the department store, MSLO said it is in a “much better” position to tackle the holiday selling season this year than it was in 2007.

“We haven’t been willing to give those numbers out, and with respect to Macy’s request,” said Robin Marino, president, merchandising and co-ceo, MSLO. “But for our fourth quarter look ahead, we do believe that we are in a much better position than we were a year ago, having added quite a number of 'giftables’ seasonal programs that we think are really going to resonate with the consumer. We have as optimistic a view on the fourth quarter as we can.”

Marino said during MSLO’s quarterly conference call last week that Macy’s is doing its part to support this effort by “putting a lot of emphasis on our Collection this holiday season.” The assortment will include gift-focused packaging and displays “that drive home the idea for holiday shoppers that our products provide the right combination of style and value they are looking for.”

While number-specific info remains clandestine, MSLO said its Martha Stewart Collection at Macy’s has generated many pluses, most notably landing the No. 1 registry spot among brides-to-be, “which is a very positive driver, and weddings are always happening, as you know,” Marino said.

“And by the way, luxury bedding is a very important aspect for us because it demonstrates the appeal for the better aspects of what we do, and I don’t see that changing,” she added, noting that seasonal gift programs have been “on plan.”

Merchandising was one of the stronger divisions in the third quarter at MSLO, with revenues of $14.6 million up 32.7% from $11.0 million in the year-ago period. Components included the addition of the Emeril business, the expansion of Martha programs in crafts and with 1-800 Flowers, the rollout of Everyday at Sears Canada, and the Collection exclusively at Macy’s. Adjusted EBITDA more than doubled, up 118% to $8.8 million.

Overall, MSLO recorded a net loss from continuing operations of 7 cents per share, narrowed from net loss of 8 cents per share in the year-ago quarter. This stemmed from a Q3 operating loss of $3.5 million, tighter than the $4.9 million operating loss one year ago.

Sales of $66.5 million fell 4.0% from $69.3 million in Q3 2007.

The company projects full year operating income (less Q3 charges of $3.5 million) of $7.5 million, and adjusted EBITDA (less Q3 charges of $3.2 million) of $23.0 million. Revenues are projected at about $295 million.

Approaching the finale of its Kmart partnership come the end of January 2010, MSLO is looking at other avenues to expand its merchandising reach.

“We’ve been really hard at work on diversifying our merchandising portfolio,” Marino said. “And we are hard at work in determining what that is going to look like going forward.”

The multimedia company already has initiatives underway to expand into new categories, including cleaning products, pet supplies, and storage and organizational goods, “to name a few — all areas where we feel we have strong brand equity,” she said. “We are fortunate to have many people anxious to do business with us … there are many, many companies first in class who want to work with us…and we are in the selection process.”

The expansion of the brand’s craft line at Wal-Mart is “being met with a very good reaction from customers,” Marino continued.

And at Kmart, MSLO expects to make its guidance this year. “Obviously, much of it depends on fourth-quarter performance,” Marino warned. “But we will be very close to that number.”

That said, sales of Martha Stewart product at Kmart declined approximately 25%, and MSLO expects Kmart program revenue to be down approximately $38 million in the fourth quarter.

International expansion of the merchandising segments is being explored actively, as MSLO has said in the recent past. “We’ve had several discussions with both licensing and sourcing partners in a number of markets that make a lot of sense for the Martha Stewart brand,” Marino said.

Giving that effort some ground game is an already-lunched effort on the publishing side of the business. Wenda Harris Millard, president, media and co-ceo, said that in the third quarter, the company introduced Martha Stewart Weddings in The Philippines, and in 2009 it will begin publishing Martha Stewart Living in Turkey and Israel as well as a Spanish-language edition of Everyday Food in Mexico.

“We are securing what we believe is a valuable beachhead for our brand in the international marketplace, and that beachhead will be more valuable as we expand our other platforms overseas,” Millard said.

Martha Stewart Living Omnimedia, Inc.

Qtr. 9/30 (millions) 2008 2007 %change
Sales $66.5 $69.3 (4.0)%
Oper. Income (EBIT) (3.5) (4.9)
Net income (3.7) (4.4)
Per share (diluted) (0.07) (0.08)
Average gross profit NMa NMa
SG&A expenses 54.4%b 54.2%b
Nine Months
Sales $211.4 $209.4 1.0%
Oper. Income (EBIT) (6.3) (25.2)
Net income (7.6) (23.0)
Per share (diluted) (0.14) (0.44)
Average gross profit NMa NMa
SG&A expenses 51.2%b 55.0%b
(loss)
a.Not Meaningful. Merchandising division revenues are primarily licensing royalties; other units incorporate specialized cost and profit structures.
b.Includes selling, promotion, general and administrative expenses.


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