Martha Stewart Living’s 3rd-Quarter Profit Plunges

Martha Stewart Living Omnimedia Inc. said Thursday its third-quarter profit plunged and warned of a fourth-quarter shortfall as it struggles to hang on to readers and advertisers amid the insider-trading scandal embroiling its namesake founder.

Martha Stewart Living, whose businesses range from magazines and television to retail products sold at Kmart Corp. stores, canceled its lucrative annual holiday TV special, citing the uncertainty surrounding Chief Executive Martha Stewart, and announced the launch of its first magazine that won’t bear her name in the title.

Stewart, who sold stock in troubled drug maker ImClone Systems Inc. a day before U.S. regulators issued a devastating ruling against its cancer drug Erbitux, is facing potential civil charges from the Securities and Exchange Commission and a criminal investigation by the U.S. Justice Department.

In a possible sign that consumers are shying away from Stewart’s homemaking advice, circulation is down at the flagship Martha Stewart Living magazine. Ratings also are down for Stewart’s syndicated television show, partly because of the investigations, the firm said.

“Future advertising trends remain dependent on the investigations’ outcome,” said President and Chief Operating Officer Sharon Patrick in a conference call with analysts. “Clearly, our business is feeling some degree of pressure.”

Martha Stewart Living, which had taken steps to de-emphasize its founder even before news of the stock scandal hit, said the new magazine will be called “Everyday Food” and subtitled “From the Kitchen of Martha Stewart Living.”

Shares of the company, which have lost more than half their value since news of Stewart’s stock sale surfaced in June, closed down $1.26, or 14.9%, at $7.20 on the New York Stock Exchange.

Martha Stewart Living’s third-quarter net income fell 42% to $2.8 million, or 6 cents per share, compared with $4.8 million, or 10 cents, a year earlier. The results were in line with analyst estimates, according to research firm Thomson First Call.

Publishing and merchandising operations helped offset weakness in the television and Internet segments in the third quarter. Total revenue rose 4% to $70.9 million from $68 million.

The company said profit in the fourth quarter, when retailers and merchandisers typically post their strongest performance because of holiday sales, would total 3 cents per share, well below the average Wall Street estimate of 10 cents per share, according to First Call.

The company also said it would take a $3-million charge related to the investigation of Stewart.