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a horsewhipping
Ad pages and revenue tumble from her legal woes
By Jeff Bercovici
Better watch your backs, cabbages. Martha Stewart has every reason to be in a bad, bad mood.
Nearly a year after the homemaking icon was first implicated in an insider trading scandal involving a friend's biotech firm, her company is still suffering the fallout.
Reporting its quarterly results yesterday, Martha Stewart Living Omnimedia had almost nothing but bad news for investors.
The company lost $4.5 million in the first quarter as overall revenue declined 15 percent year over year, totaling $58 million. It projected further losses in the second quarter as well.
Stewart herself, meanwhile, has given up on predicting a speedy resolution to the crisis.
"During our last earnings teleconference this past March, I expressed that I was increasingly hopeful that my personal legal situation regarding the ongoing governmental investigation of my sale of noncompany stock would be resolved in the near future," she said yesterday. "Obviously that has not happened and I can make no predictions as to when it will."
Publishing, which constitutes the most important part of Stewart's business, generating about two-thirds of its revenues, is also the most troubled. Ad pages at the flagship title, Martha Stewart Living, were down 23 percent to 264.2, and revenue plunged 21 percent to $34.6 million, according to the Publishers Information Bureau.
Although the ad economy remains shaky, Stewart can hardly use that as an excuse. A number of Martha Stewart Living's competitors posted strong ad page gains in the first quarter, including Real Simple (up 69.3 percent), Ladies’ Home Journal (up 42.1 percent), Better Homes & Gardens (up 17.5 percent) and O: The Oprah Magazine (up 16 percent).
Although circulation figures for this year are not yet available, Martha Stewart Living's single copy sales tumbled nearly 22 percent in the second half of 2002, a decline that must be attributed to her public image problems, says circulation analyst John Harrington of Harrington Associates.
"You had a magazine that was on a consistent up track for something like five straight years," says Harrington.
"It's a normal pattern that newsstand sales will level off, but they don't just fall off overnight. The only thing you can trace it to is all the negative publicity surrounding her insider trading scandal. You'd have to say there was a direct relationship."
Outside of the publishing sector, Stewart's businesses didn't fare quite so poorly. TV revenues were down just 1.4 percent, to $6.6 million, and combined revenues from internet advertising and e-commerce, at $7.0 million, were off by a similarly slight margin.
Merchandise sales fell 7 percent to $10.3 million, but some of that can be blamed on the closure of 600 Kmart stores, where Martha Stewart Everyday products are sold.
The company also reported an increase of more than $2 million in corporate overhead stemming primarily from legal and professional costs related to the insider trading inquiry.
There was some good news, however. Everyday Food, Stewart's first new magazine to lack her name in the title, has tested well on newsstands. The company will decide in June whether to go forward with a full launch.
May 1, 2003© 2003 Media Life
-Jeff Bercovici is a staff writer for Media Life.
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