Kmart Extends Its Deal With Stewart
Kmart Holding Corp. extended its contract to sell housewares bearing the name of convicted felon Martha Stewart.
The agreement with Martha Stewart Living Omnimedia Inc. runs through January 2010, a two-year extension, and drops guaranteed royalty payments Kmart made on various categories of Martha Stewart Everyday products in favor of an overall minimum, the companies said Monday. Stewart, 62, was convicted in March of obstructing a stock-sale investigation.
The companies came to agreement after Kmart closed about 600 stores while under bankruptcy protection, reducing sales of Martha Stewart housewares such as bed linens and towels. Kmart, based in Troy, Mich., also agreed to drop a lawsuit contending Martha Stewart Living demanded as much as $6.5 million more in royalties than it was owed.
“The problem was Kmart dropped a number of stores, so it was impossible for them to meet the [royalty] guarantees,” said Dennis McAlpine, founder of independent research firm McAlpine Associates in Scarsdale, N.Y.
Shares of Kmart, which exited bankruptcy protection in May, dropped 78 cents to $46.17 on the New York Stock Exchange. Martha Stewart Living shares dropped 2 cents to $10.61, also on the NYSE.
The new contract continues to require that royalty payments increase each year regardless of sales. The companies declined to give details of the royalties.
Martha Stewart Living said sales from its merchandising division, which relies on Kmart for about 85% of revenue, declined in the first three quarters of last year. Martha Stewart Living’s merchandise revenue last year was $53.4 million, excluding the disputed payments. Kmart contributed 22% of Martha Stewart Living’s $245.9 million in sales last year.
Martha Stewart merchandise accounts for about 5% of Kmart’s sales, UBS analyst Gary Balter wrote in a report. That would have been about $1.2 billion of Kmart’s $23.3 billion in sales last year.
“The negative publicity surrounding Martha Stewart does not seem to have affected sales and we feel that the brand’s strong sales should continue,” Balter wrote.
