The department store chain will no longer sell certain home and bath products designed by Martha Stewart Living Omnimedia Inc., the two companies said Monday. Penney will sell a smaller batch of Martha Stewart products, including window treatments and party supplies.
Penney and Martha Stewart Living signed a merchandising deal in December 2011. That prompted Macy's Inc. to sue both companies for violating its exclusive agreement with Martha Stewart.
New York Supreme Court Justice Jeffrey Oing has been expected to rule this week in a court battle over whether Macy's has an exclusive right to sell some Martha Stewart products.
Executives at New York-based Martha Stewart Living declined to comment on how the agreement would affect the judge's ruling.
Penney also will sell the 11 million shares it bought in Martha Stewart Living as part of the 2011 licensing deal and give up two seats on Martha Stewart's board.
The revised agreement is the latest way that Penney's chief executive, Mike Ullman, is trying to unravel the botched bid by former CEO Ron Johnson to transform the Plano, Texas-based retailer. Johnson's changes led to disastrous results and sent Penney's stock plummeting. Since Ullman retook the helm after Johnson was ousted in April, he has restored some of the sales events and basic merchandise that Johnson got rid of.
Monday's announcement confirms "Macy's exclusivity in Martha Stewart housewares," said Ted Grossman, a partner at Jones Day, the law firm that represented Cincinnati-based Macy's in the court case. "It was a total vindication of Macy's rights going forward," he said. Reimbursement for fees and possible damages remain at issue, Grossman said.
Johnson, who became Penney's CEO in November 2011, signed a 10-year merchandising deal with Martha Stewart Living a month later and touted it as a key part of his plan to reinvent the retailer. Penney also invested $38.5 million in Martha Stewart Living.
A month later, Macy's sued Martha Stewart Living and Penney to try to block the deal. Macy's was seeking to stop Penney from selling Martha Stewart-branded goods in kitchenware, bath and bedding, in addition to designs created by Martha Stewart that do not carry her name in those areas. Macy's is also seeking monetary damages.
Attorneys for Macy's, Martha Stewart and Penney presented closing arguments Aug. 1.
The outlook for Martha Stewart merchandise dimmed after Oing issued a preliminary injunction in summer 2012 that barred Penney from putting the Martha Stewart name on the goods covered by Macy's exclusive agreement until the final ruling was made.
Penney went ahead and ordered goods designed by Martha Stewart in the exclusive products but sidestepped the preliminary injunction by labeling them JCP Everyday. The goods were delivered in May and were part of an overhauled home area that was unveiled this summer. But the home area has not done well and Penney is now making changes.