Martha Stewart Stock Falls After Her Return

Martha Stewart Living Omnimedia Inc. shares fell 9% on Monday on concern that the company founder’s return to work after five months in prison won’t immediately spark higher advertising sales and a return to profit.

Martha Stewart, who built her catering business into a billion-dollar media and housewares company, addressed employees at her company’s New York headquarters, pledging to change editorial direction to “engage and inspire” new readers and viewers.

While Stewart was in prison, the stock surged on optimism that the company would stem defections by advertisers, readers and viewers once she returned. Sales at Martha Stewart Living plunged 24% to $187.4 million last year as advertisers deserted the company’s publications, and the company posted a fourth-quarter loss of $7.3 million.

“The reality is now setting in,” said Ivan Feinseth, an analyst with Matrix USA in New York. “This is a company with declining sales and a high stock price. Now she’s got to go to work and make her comeback.”

Martha Stewart Living shares, which have more than doubled since Stewart was sentenced on July 16, fell $2.78 to $27.97 on the New York Stock Exchange. They earlier dropped as low as $27.20.

The company’s 544 employees, who gathered in a large room overlooking the Hudson River, greeted Stewart with a standing ovation. Stewart, who peppered her speech with jokes and stories of her time in jail, said she would dedicate her company to “making life better” for readers and viewers. She said she spent a lot of her time in prison thinking about her life.

“There’s no doubt that the last three years have certainly been an adventure for me,” Stewart said in her address. “Though stressful, I can say that I don’t regret everything. I’ve had profound experiences, met extraordinary people, felt deeply loved by my family.”

Stewart was convicted last year of lying about why she sold shares of ImClone Systems Inc. stock in 2001, just before the price plunged.

Stewart gave few details Monday of the change in editorial direction. She said the company would take more time to explain the importance of the skills it promotes, such as baking and home decorating.

“Perhaps we focused too much on the ‘how to’ and not enough on the ‘why,’ ” Stewart said. The company will strive to help customers “make life simpler and more manageable and more rewarding,” she said.