- The Washington Times - Friday, March 5, 2004

NEW YORK — The guilty verdict for Martha Stewart will badly damage her company, scaring more advertisers and perhaps readers and viewers away from her media business, industry experts said. Sales of her towels and other household goods may hold up better.

Within an hour of the verdict, Martha Stewart Living Omnimedia Inc. issued a statement saying the board would meet promptly to carefully “evaluate the situation and take actions as appropriate.”

“In the meantime, we are confident that our assets … are more than sufficient to continue MSO’s development as a leading ‘how too’ brand building company,” it said.

Observers, however, believe that with the name and face of the company tarnished by a conviction, it will be difficult to sustain the brand — especially with competition that has intensified since Stewart’s legal woes began 22 months ago.

“This is a terrible tragedy for a great brand,” said Seth Siegel, co-founder of the Beanstalk Group, a trademark-licensing agency.

Martha Stewart Living Omnimedia, which has been adding new magazines and TV shows without Stewart’s name over the past year — “Petkeeping with Marc Morrone” and “Everyday Food” — will have to keep developing other brands or personalities, he said.

“The company can still survive because it has phenomenal infrastructure,” Mr. Siegel said, but added that it could take years for many advertisers to come back.

Regardless of the trial’s outcome, Martha Stewart Living Omnimedia “has to rebuild itself,” said T.K. MacKay, an analyst at Morningstar. “There have been dramatic declines in ad revenue.”

The good news, analysts said, is that Martha Stewart Living has $170 million in cash on hand, enough to withstand several more quarters of declining ad revenue.

Investors didn’t immediately see an upside. Shares in the company plunged 23 percent after the verdict was announced, or $3.17, to close at $10.86. They lost 22 cents more in extended trading. The stock had risen 16 percent before the verdict as investors seemed to bet that she would be acquitted.

Shares in the company had been trading about $19 per share before her name was tied to the scandal.

Stewart, who owns 61.2 percent — about 30 million shares — of her multimedia empire Martha Stewart Living Omnimedia Inc., has seen her personal stake in her company drop about $250 million to approximately $326 million.

The verdict came on the heels of the company’s report Thursday of its first annual loss. Revenues from publishing, which account for 60 percent of sales, fell 28 percent in the fourth quarter.

The company also warned that pressure from Stewart’s trial would further weigh down advertising revenues in the first quarter, resulting in a bigger-than-expected loss.

While advertisers have fled, sales of Martha Stewart-branded merchandise at Kmart and other stores held up well during and before the trial. Kmart officials could not immediately be reached for comment.

But Mac Ryland, director of interior furnishings at the consulting company Kurt Salmon Associates, doesn’t believe that retailers will abandon Martha Stewart.

G. Alex Bernhardt Sr., chief executive officer of Bernhardt Furniture Co., which recently debuted furniture collections under the Martha Stewart Brand, said the brand is separate from Stewart’s legal woes.

“We are totally committed,” he said.

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