Stewart Still Firmly Planted

If Martha Stewart were just about anyone else, she’d be in real trouble.

Magazine advertising, the anchor of her empire, has fallen dramatically. Kmart Corp., the exclusive retailer of her products, filed for bankruptcy protection in January. An unauthorized and unflattering biography of her has been at the top of the bestseller lists. And now questions are being raised over whether she used inside information to sell shares of ImClone Systems Inc. just before the stock took a dive.

But Martha Stewart isn’t just anyone else.

Even as Wall Street sold off shares of her namesake company in droves Wednesday--driving Martha Stewart Living Omnimedia Inc. shares down $2.10 to close at $15, on volume more than 16 times higher than average--most analysts agreed that investors would come back.

That’s because no matter what business, market or government forces say about Stewart, millions of women and a fair number of men across America continue to look to her and her products for their own personal homemaking salvation.

“There is a lot of demand for Martha Stewart and her branded products--that’s really the issue here,” said Jeffrey Klinefelter, an analyst with U.S. Bancorp Piper Jaffray in Minneapolis, after Stewart’s presentation Wednesday at the Piper Jaffray investor conference in New York. “That will bring investors back. Right now the market is very skittish and has knee-jerk reactions to negative news.”

Martha Stewart Living Omnimedia is the umbrella organization for all things Martha, including three magazines, a “how-to” television show with six weekly episodes, a weekly appearance on CBS’ “This Morning,” a cable TV cooking show, 34 books that have sold more than 10 million copies, a weekly newspaper column, a radio program and more than 5,000 Martha Stewart products sold through direct mail or, in the United States, at Kmart stores.

The company’s trouble Wednesday came as a result of Stewart’s close ties to Samuel Waksal, ImClone’s former chief executive who was arrested Wednesday on charges of conspiracy, securities fraud and perjury related to an alleged insider trading scheme.

Reports last week detailed Stewart’s sale of 3,928 shares of ImClone stock the day before the Food and Drug Administration rejected the application for approval of ImClone’s experimental cancer drug, sending the pharmaceutical company’s stock plummeting.

Shares in Martha Stewart Living Omnimedia have fallen almost 21% since those reports surfaced.

Still, analysts said that for the moment, Wall Street is far more concerned than Main Street with Stewart’s proximity to ImClone.

“It’s an issue most of America either doesn’t know about or doesn’t care about,” said Alissa Goldwasser, a media analyst with William Blair in Chicago. “I believe there is a tremendous opportunity for the shares to rebound. I think it’s misplaced concern on the part of investors.”

In fact, most analysts say, the only real danger to Martha Stewart Living Omnimedia is Stewart herself. As critics of the company have long charged, Stewart is so identified with every single aspect of the company that many question whether it can continue without her.

Goldwasser said company executives are hoping to ensure the ongoing health of the company whether she is around or not, as Kentucky Fried Chicken did without Colonel Sanders. But that transition is no easy feat.

“I perceive a balancing act between having her as a charismatic spokeswoman and ensuring the long-lived nature of the brand,” Goldwasser said. “The key thing is to change her from a celebrity into an icon. I think they’re very aware and very focused on it.”

At the moment, however, the company is focused on putting to rest any notion of impropriety on Stewart’s part. Congressional investigators have asked Stewart for her phone records in connection with her ImClone trades.

In a statement released Wednesday, Stewart said she had directed her broker to sell her remaining ImClone shares if the stock fell below $60. Her broker called Dec. 27 to advise that the shares had fallen below that mark and Stewart sold her stake at $58.

“After directing my broker to sell, I placed a call to Dr. Waksal’s office to inquire about ImClone,” Stewart said. “I did not reach Dr. Waksal and he did not return my call. In placing my trade I had no improper information. My transaction was entirely lawful.”

Analysts said the ImClone imbroglio comes at a time when the fundamentals are improving for Stewart’s company. The advertising market is rebounding, Kmart is locked into a minimum payment guarantee and other retail suitors continue to wait hungrily in the wings.

The company in April announced first-quarter earnings of $2.9 million on sales of $68.7 million, beating Wall Street earnings estimates by a penny a share, though still half the profit of the same period a year ago.

Since 1997, the company has increased sales by an average of 23% annually, and earnings per share by about 18% per year. In 2001, the company posted net income of $21.9 million on sales of nearly $296 million.

But at a time when investors are nervous about any perceived impropriety, Stewart’s extensive creation is being punished for something that will likely amount to nothing, analyst Klinefelter said.

“It probably presents a pretty compelling buying opportunity,” he said.