- The Washington Times - Friday, November 1, 2002

NEW YORK (AP) Martha Stewart Living Omnimedia Inc., struggling with an insider-trading scandal involving its namesake chief executive, reported a sharp drop in quarterly earnings yesterday and announced plans for a new magazine that, in a first, would not bear the domesticity maven's name.
The multimedia company, which produces magazines, TV shows and merchandise all under the Martha Stewart brand, also warned yesterday that fourth-quarter profits would fall well short of Wall Street earnings expectations, as it faced skittish advertisers, muted merchandising sales and higher corporate expenses related to the federal probe of Mrs. Stewart's sale of stock in ImClone Systems Inc. last year.
Consumers are showing signs of turning sour on the brand, as the company acknowledges a weakening in Martha Stewart Living magazine renewal rates and the company's signature program's TV ratings.
"We believe the core Martha Stewart customer remains loyal to the company's ideas and products, but there appears to be erosion among fringe consumers," Kathryn Alexander, an analyst at Adams, Harkness & Hill, said in a research report released yesterday. "Advertisers and other business partners have shown less loyalty to the company."
Shares in Martha Stewart Living Omnimedia fell 20 cents to $8 yesterday on the New York Stock Exchange.
The magazine Everyday Food set to start in January as a four-issue test will reach beyond the core Martha Stewart fan and appears to be a step by the company to downplay her role as the company's key brand.
In a conference call, Mrs. Stewart, who declined to comment on the investigation and did not take any questions, said the company had to "combat a great deal of negative publicity" surrounding her legal woes, which had "overshadowed" the company's business.
Legal problems are mounting for Mrs. Stewart, who has maintained her innocence. Late last month, she received a notice from the Securities and Exchange Commission notifying her that it planned to recommend civil securities fraud charges against her related to her ImClone sale. Meanwhile, the Justice Department is investigating whether to file criminal charges.
The company's Everyday Martha Stewart line, which is exclusive to Kmart Corp., has suffered because of the discounter's bankruptcy. Kmart shares fell 1 cent yesterday to close at 80 cents on the New York Stock Exchange.

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