- The Washington Times - Tuesday, February 22, 2005

NEW YORK — When Martha Stewart is released from prison next week, the doyenne of domesticity will return to the multimedia company she founded, which faces a much brighter outlook than when she was convicted of lying about a stock sale a year ago.

Back then, Martha Stewart Living Omnimedia Inc.’s future looked gloomy. Stewart’s syndicated daily TV show was placed on hiatus. The company’s stock dropped 23 percent, reaching $10.86 on March 5, 2004, the day of her conviction, and sank further over the next few days. Some even predicted the death of the brand.

But that was the bottom.

Martha Stewart Living’s shares stock has more than tripled, trading yesterday at $34.48 on the New York Stock Exchange, at the high end of its 52-week range of $8.25 to $36.53 per share.

Advertising executives were more upbeat after Stewart started her five-month sentence in early October. And Stewart’s TV career is also being revived through two deals struck with reality TV guru Mark Burnett. One is a revision of her daily homemaking show; the other will have Stewart star in her own version of Donald Trump’s “The Apprentice.”

The company, meanwhile, is hiring again after paring down its work force, and has continued to diversify beyond the Martha Stewart name.

Susan Lyne, a board member and former ABC entertainment president who was installed as chief executive officer after the board ousted Sharon Patrick, pulled off the January introduction of “Every Day Food” television program on PBS, building on the success of its magazine that bears the same title.

But while Martha Stewart Living Omnimedia is showing signs of a comeback, the question is whether the recovery can be sustained. The company has reported a string of quarterly losses and reduced revenue as advertisers have fled. Martha Stewart Living Omnimedia is expected to report another loss when it reports fourth-quarter results today. Analysts polled by Thomson First Call project a 17 cent-per-share loss and a 21 percent drop in revenue compared with a year ago.

The primary challenge is restoring the luster to the Martha Stewart brand, which was built on aspiring to perfect living and stamped on all sorts of products from sheets to magazines. It has suffered since its namesake’s personal legal problems began almost three years ago.

Seth Siegel, co-founder of the Beanstalk Group, a trademark licensing agency, and other brand consultants believe the TV deals, in particular, will improve Stewart’s image and breathe new life to her merchandise and magazines.

“I’m going to be very surprised that there isn’t a rebound and recovery back to the days before Martha had any problems and her legal problems will not result in any long-term decline in product and publishing,” Mr. Siegel said.

But Wall Street analyst Dennis McAlpine of McAlpine Associates is wary, dismissing the stock price’s rise as pure short-term hype.

“I think the stock is overpriced. Ultimately, it will catch up” with the company, he said.

Some believe Kmart Holding Corp.’s planned acquisition of Sears, Roebuck and Co. will be a blessing for the Martha Stewart Everyday brand, which has seen sales hurt at a time when Kmart has been closing stores. Others, like consultant Burt Flickinger III, managing partner at Strategic Resource Group, see little benefit, saying Sears has had problems with merchandising, and doesn’t have space for another line.

Since reports surfaced in June 2002 that tied Stewart to a questionable sale of stock in biotech ImClone Systems Inc., her name has taken a beating. During her trial, Stewart was portrayed as rude, demanding and cheap. But while incarcerated, Stewart has drawn sympathy from outsiders. She has stayed in touch with fans through her own Web site, marthatalks.com, taking swipes at the prison food and calling for sentencing reform.

How the former chief executive officer will remake her image and what role she will play when she returns as founding editorial director remains to be seen. Stewart is scheduled for a March 6 release from prison. After that, she will serve five months of house arrest, though she will be allowed to work outside her home for 48 hours a week.

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