Not a Good Thing

Martha Stewart Living Omnimedia Inc. (New York) announced that its second quarter 2003 revenues tumbled by 16 percent and operating income plummeted 89 percent.

Merchandising revenues in the quarter ending June 30, 2003, fell 26 percent. The gains realized by the launch of the Martha Stewart Signature line of furniture and a higher royalty rate on Martha Stewart Everyday products sold at Kmart was offset by the impact on product sales of Kmart store closures and the elimination of certain garden products.

“During an exceptionally difficult quarter, our talented team responded to the challenges presented by the effects of Martha Stewart's personal legal situation and continued to earn the loyalty of readers, viewers, and customers by creating and producing the unique how-to information and quality products for the home that define our brand,” said president and ceo Sharon Patrick. “We believe that the Martha Stewart Living core brand will continue to be under pressure until resolution of Martha Stewart's personal legal situation.

“Our strategy until then will be to continue to invest in sustaining our core Martha Stewart Living brand equity, brand labels and other assets, all the while investing in new properties like Everyday Food and controlling costs wherever doing so does not conflict with those goals.”

According to Patrick, highlights for the quarter “included our recent decision to launch our new Everyday Food magazine, reflecting the strong consumer response to its four test issues. We believe this near-term investment will generate long-term profitability. We are excited by the prospects for this innovative magazine aimed directly at the burgeoning market of the busy home cook.

“In addition,” said Patrick, “the quarter included the successful launch of our Martha Stewart Signature furniture collection. Looking to the third quarter, we are excited about the launch of our Martha Stewart Everyday program with Sears Canada in September.”

James Follo, the company's cfo, commented, “We continue to maintain our strong financial position, including $172 million in cash and short-term investments at quarter-end. We recognize that the challenges we face are likely to persist for some time, and we are carefully balancing that against our opportunities for growth and our commitment to building value for the long-term. Our current outlook for the third quarter is for a loss per share of approximately 15 cents a share and, for the full-year 2003, a loss of approximately 18 to 20 cents per share.”