Martha Stewart Living’s Profit Drops
Martha Stewart Living Omnimedia Inc. said second-quarter profit plunged 86% as the company’s founder was indicted on obstruction-of-justice charges and advertisers deserted its flagship magazine.
Net income declined to $931,000, or 2 cents a share, from $6.74 million, or 14 cents, a year earlier. Revenue fell 16% to $65.8 million from $78.6 million, Martha Stewart Living said.
Second-quarter revenue was lower in all the company’s businesses, including publishing, television and merchandise sales. Analysts say Martha Stewart’s indictment has tarnished her company’s image and made its flagship magazine, Martha Stewart Living, harder to sell to readers and advertisers. Stewart’s trial begins in January.
The company said it expected a third-quarter loss of 15 cents a share, wider than the 6-cent average loss forecast by five analysts polled by Thomson First Call. It would be the New York-based company’s third unprofitable quarter out of four.
After Stewart’s indictment in June, she accepted a reduced role, stepping down as chairwoman and chief executive to become chief creative officer. Sharon Patrick, who replaced Stewart, said the company won’t have a clear picture of when its business might improve until Stewart’s trial begins.
“Our business will rebound in the case of a positive resolution,” Patrick said.
Publishing sales declined 16% to $39.6 million from $47.3 million a year earlier. Circulation revenue fell because of lower newsstand sales and a reduction in the subscription price for Martha Stewart Living. About $5 million of the company’s revenue was from Everyday Food, a new magazine, Chief Financial Officer Jim Follo said.
A 40% decline in magazine ads, a major source of the company’s revenue, will cause third-quarter sales to fall by 30%, Follo said. The company also will lose $6 million the rest of the year from its investment in Everyday Food, which won’t be profitable until 2006, Follo said.
Revenue from merchandising dropped 26% to $11.8 million. The unit, which sells housewares such as bed linens, and patio furniture at Kmart Holding Corp., was hurt by Kmart store closings, Follo said.
Sales at the television unit decreased 9.1% to $6.59 million while Internet-related revenue fell 3% to $7.81 million.
Shares of Martha Stewart Living fell 14 cents to $7.84 on the New York Stock Exchange. They have declined 21% this year.
The charges against Stewart revolve around her sale in December 2001 of $228,000 worth of ImClone Systems Inc. stock. Stewart and her former broker are accused of concealing that Stewart was tipped off to sell the shares the day before ImClone’s cancer drug Erbitux encountered a regulatory setback.
