Stewart’s Firm Posts Quarterly Loss

Martha Stewart said Tuesday that the legal troubles that have tarnished her image may be resolved soon, but the company that bears her name said it could not yet see an end to its financial woes.

“Although I am increasingly hopeful that my personal legal situation will be resolved in the near future, it is still inappropriate for me to discuss anything relating to [it] on this call,” Stewart said during a Martha Stewart Living Omnimedia Inc. conference call to discuss the company’s fourth-quarter loss.

The company, which publishes Martha Stewart Living magazine and sells a line of products at ailing retailer Kmart Corp., said investigations into Stewart’s sale of ImClone Systems stock had hurt nearly every aspect of its business.

The company posted a fourth-quarter net loss of $2 million, or 4 cents a share, contrasted with net income of $5.73 million, or 12 cents, a year earlier. Sales fell 6.2% to $77.6 million, the New York-based company said.

Amid uncertainty about Stewart’s fate, the company canceled her lucrative Christmas television special and said newsstand sales of Martha Stewart Living magazine -- a key barometer of public interest -- had fallen.

“The tarnish on the brand name affects the valuation of the stock, just like it affects consumers and advertisers interested in doing business with the company,” said Laura Richardson, an analyst at Adams, Harkness & Hill.

Shares of the company closed down 30 cents, or about 4%, at $7.25 on the New York Stock Exchange. The stock has lost about two-thirds of its value since allegations about Stewart’s ImClone stock trade surfaced in June. Stewart is her company’s largest shareholder.

The company said it does not see any improvement in the first quarter. It expects a loss of 6 cents to 8 cents a share from continuing operations in the period. Analysts had expected a profit of 3 cents, on average, according to research firm Thomson First Call.

The Securities and Exchange Commission and the U.S. attorney’s office have been investigating Stewart’s sale of ImClone stock for months.

The SEC said in October that it had enough evidence to charge her, but it has not taken public action.

“Is it extraordinary? No. Is it unusual? Yes,” Ira Sorkin, the former director of the SEC’s New York office, said of the slow-moving investigation.

While the investigations drag on, business is not likely to improve, company executives said.

“Until this situation is resolved, we will likely continue to face challenges throughout our businesses,” said President and Chief Operating Officer Sharon Patrick.

The company also said Tuesday that it is scaling back its Internet/direct-commerce unit, which sells to consumers online and via catalogs, to focus on higher-margin goods. An undisclosed number of employees will be laid off, it said.