- The Washington Times - Sunday, January 25, 2004

NEW YORK - The jury verdict in Martha Stewart’s trial will do more than determine the future of the doyenne of style — it also could seal the fate of her multimedia company.

Analysts say anything short of a full acquittal on charges she lied to prosecutors in a 2001 stock sale could further damage Martha Stewart Living Omnimedia Inc. Even if the namesake founder and former chief executive is found not guilty, the brand stamped on products from bedsheets to magazines will have a hard time reclaiming the cachet it once had, some observers say.

“There are many variables here, and no one has the crystal ball for the outcome for the brand,” said Seth Siegel, co-founder of the Beanstalk Group, a trademark licensing agency.

The big question, he says, is “whether the company will go into an economic tailspin” if Mrs. Stewart is found guilty. The good news is that the company has enough cash to withstand several more quarters of declining advertising revenue, Mr. Siegel and other sources said.

Dennis McAlpine, managing partner of McAlpine Associates, a research firm, believes that even if Mrs. Stewart is found not guilty, “the brand will go into a slow decline.”

“I don’t think she will get the luster back she used to have,” he said. “There’s been too much damage.”

Not to mention that the expected barrage of news coverage and constant images of Mrs. Stewart on trial could take a toll on the company’s stock.

“The stock is being traded on emotions,” said Jamelah Leddy, an analyst at McAdams Wright Ragen, a brokerage in Seattle. In fact, in recent weeks, shares have soared almost 30 percent on the New York Stock Exchange, as some investors speculate that Mrs. Stewart will be acquitted.

Despite such gains, the stock is still down almost 40 percent since June 2002, when news surfaced that Mrs. Stewart’s name was tied to the ImClone Systems Inc. insider-trading scandal. The company, which produces magazines, TV shows and merchandise, also has struggled with skittish advertisers, slumping sales and quarterly losses.

The company hit its lowest point this past June, when Mrs. Stewart stepped down as CEO and chairwoman hours after she was indicted on charges she lied to federal investigators probing her December 2001 sale of ImClone shares. The stock was sold a day before a negative government report sent its price plummeting.

In October, Martha Stewart Living reported a loss and a 28 percent drop in revenue for its third quarter and said advertising revenue would continue to be depressed early this year.

But Mrs. Stewart has held on to loyal customers, and her major retail and manufacturing partners have stuck by her.

“Now, I go out of my way to look for Martha Stewart things,” said Julieta Gonzalez, 52, from Tucson, Ariz. “It’s an act of support.”

Kmart, which featured Mrs. Stewart in TV holiday ads, said the Martha Stewart Everyday line continues to be a top seller, although it has been hurt by the discounter’s closing of hundreds of stores. Sears Canada, which began selling Mrs. Stewart’s products in September, reports strong sales.

“We are watching things develop, but we are moving forward with the line,” said Vincent Power, a spokesman at Sears Canada, which is working with the company to develop new patterns for late spring and fall.

“Our customers have definitely been able to separate out any legal issues from how they feel about the line,” he added.

Meanwhile, Bernhardt Furniture Co. calls its recently introduced furniture collections under the Martha Stewart brand the most successful in its 114-year history.

G. Alex Bernhardt Sr., the company’s CEO, said that whatever the trial’s outcome, the company plans to continue the relationship with Mrs. Stewart’s company.

“There are 550 extremely talented people there,” said Mr. Bernhardt.

Although merchandising sales have held up well, and quality of the products has remained high, consumers’ trust in the brand has eroded, said Robert Passikoff, president of Brand Keys, a marketing research firm.

“What has surrounded the brand has been bad news — unless you count her bringing out artificial Christmas trees,” said Mr. Passikoff, referring to Mrs. Stewart’s expanded holiday line for Kmart this past season.

Since Mrs. Stewart’s legal issues surfaced, company executives have voiced their support for her, while moving forward with new projects that don’t bear her name.

The company added Everyday Food — the company’s first magazine not to carry her name — and a new TV show called “Petkeeping with Marc Morrone,” both of which have been well-received by advertisers and consumers. Executives say the strategy was put in place before Mrs. Stewart’s troubles began.

Still, as company spokeswoman Elizabeth Estroff said: “Martha continues, on the creative front, to be as industrious as ever.”

Analysts say the big worry is with the publishing division, which accounted for 62 percent of the company’s total revenue of $295 million in fiscal 2002. Ad pages were down 39 percent at its flagship Martha Stewart Living magazine in the third quarter from a year ago. Even if Mrs. Stewart is acquitted, it will take awhile before advertisers return, analysts said.

Miss Estroff declined to comment on the trial or what backup plans the company has in place. That leaves Wall Street analysts only to speculate how the situation could play out.

Mr. McAlpine said if Mrs. Stewart has to serve a jail term, the company could very well change the name of the flagship magazine and the syndicated TV show. But if Mrs. Stewart is either exonerated, or convicted without having to serve time in prison, he expects her to remain involved in the company.

“She’s no shrinking violet,” Mr. McAlpine said.

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