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Stewart's Legal Problems Hurt Firm

By Ben White
Washington Post Staff Writer
Wednesday, August 4, 2004; Page E01

NEW YORK, Aug. 3 -- Martha Stewart Living Omnimedia Inc. continues to get hammered by the legal woes of its famous founder.

On Tuesday the company announced a second-quarter loss of $19.3 million, as skittish advertisers stayed away firm's flagship lifestyle magazine, Martha Stewart Living.

Advertisers shunned Martha Stewart Living and the publishing division took a hit. (Daniel Acker -- Bloomberg News)

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The loss, which amounted to 39 cents per share, was bigger than Wall Street analysts expected and pushed the company's stock price down 15 cents, or 1.3 percent, to $11.25 a share. Shares dropped as low as $10.75 on Tuesday before recovering some.

Chief executive Sharon L. Patrick told investors on a conference call that advertisers would not return until founder Martha Stewart, who was sentenced in July to five months in prison for obstructing a federal securities investigation, either wins on appeal or completes her jail term.

"Only when Martha puts incarceration behind her and/or has successfully completed the appeals process and, as importantly, is no longer the subject of chronic negative media attention and events, will large numbers of advertisers actively return to our media properties," Patrick said.

The $19.3 million loss compared with a profit of $931,000, or 2 cents a share, for the same quarter a year ago. The company said revenue dropped 33 percent, to $44 million.

Martha Stewart Living chief financial officer James Follo predicted losses would widen to 50 cents per share in the third quarter. Wall Street analysts surveyed by Thomson First Call had predicted losses of 33 cents per share for the company in both the second and third quarters of this year.

The company's publishing division, which includes the flagship magazine, posted a loss of $5.32 million, compared with a profit of $9.34 million.

To stem mounting losses, the firm said it would close unprofitable ventures such as its catalog business. It also announced that it would begin airing a new television program, "Everyday Food," on PBS stations to capitalize on what the firm describes as the success of its new magazine of the same name.

The company also said in a prepared statement that it had $158 million in cash and no debt and that "will allow us to manage through this period and invest in our future."

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