Stock Probe Hurting Martha's Business

Martha Stewart Living Omnimedia Inc. reported its first-ever quarterly loss Tuesday and warned of more bad news ahead, as the company continued to suffer sharp declines in its broadcasting and Internet businesses as well as fallout from the government investigation into its namesake founder's stock-trading.

For the three months ending Dec. 31, the media and retailing company lost $2.0 million, or 3 cents per share, in contrast to a profit of $5.7 million, or 13 cents per share, in 2001. The latest results marked the first time the company has reported a net loss for any quarter since it went public in 1999.

Excluding a $7.7 million restructuring charge, the company earned 6 cents per share in the fourth quarter — putting it ahead of the 3 cents per share that analysts surveyed by Thomson First Call had forecast on a comparable basis.

But the company warned of more difficulties ahead, saying it expects a first-quarter loss of 6 to 8 cents per share.

"Our business continues to be negatively impacted by the ongoing uncertainty related to the investigations into the sale of non-company stock by Martha Stewart," company president and chief operating officer Sharon Patrick said in a news release. "Until this situation is resolved, we will likely continue to face challenges throughout our businesses."

Federal regulators are investigating whether Stewart was trading on insider information when she sold shares of ImClone stock in December 2001. Stewart has denied any wrongdoing, but since the allegations became public in June, her company's stock price has tumbled more than 50 percent.

Fourth-quarter revenues were $77.6 million, compared to $82.7 million in 2001, following declines in the company's publishing, television and Internet/direct commerce divisions.

TV revenues fell 33 percent — a loss the company attributed to the lack of a holiday TV special. Martha Stewart also said it is restructuring and reducing the operations for its Internet/direct commerce division, which lost nearly 18 percent in revenues in the fourth quarter.

Merchandising revenues were higher, however, increasing 11 percent to $11.8 million in the quarter. The company said it benefited from strong demand for its new Martha Stewart Everyday Holiday line and higher royalty rate under its contract with Kmart. Kmart's decision to file for bankruptcy protection and close some stores, however, limited the gains.

The company also said that advertising revenue for its Martha Stewart Living magazine was up for the quarter, and it has been pleased by the response to two new products — Everyday Food magazine and its Martha Stewart Signature Furniture offerings.

For the full year, Martha Stewart earned $7.3 million, or 15 cents per share, down 67 percent from $21.9 million, or 45 cents per share, in 2001.

Revenues for 2002 were $295.1 million, up 2.2 percent from $288.6 million in 2001. Revenues were lifted by a nearly 38 percent gain in merchandising revenues during the year, that helped offset a 10 percent drop in TV revenues and a 20 percent loss in Internet/ direct commerce revenues.