- NEW YORK (Reuters)
- As lifestyle maven Martha Stewart readies her defense for her obstruction
of justice trial, her namesake company faces challenges of its own.
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- Martha Stewart Living Omnimedia Inc. (MSO.N: Quote, Profile,
Research) faces a drooping stock price and sluggish advertising at its
flagship magazine on the eve of its founder's high-profile trial. The company
is not accused of any crimes, but analysts say its reputation could be
on the line because it is so closely tied to Stewart's image as an icon
of style and taste.
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- "Anything short of complete exoneration in this
case will have some sort of negative impact on the business," said
T.K. MacKay, an analyst at Morningstar Inc. in Chicago. "The evidence
is already there that her marred reputation is having an impact."
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- Stewart, 62, who has advised millions in the arts of
entertaining, gardening and decorating, goes on trial this month on federal
charges stemming from her late 2001 sale of shares in drugmaker ImClone
Systems Inc. (IMCL.O: Quote, Profile, Research) . She resigned as chief
executive hours after her June 2003 indictment but remains a board member
and was named chief creative officer.
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- Martha Stewart stock is down about 40 percent since the
probe heated up in June 2002. But shares are up about 16 percent so far
in January, closing at $11.35 on Friday on the New York Stock Exchange.
The recent gains, analysts say, are a sign some traders think Stewart will
be acquitted.
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- The company has acknowledged that business has been hurt
by the scandal and recently cut guaranteed circulation to advertisers at
Martha Stewart Living magazine because of readership declines. In late
October, it posted a third-quarter loss, hurt by a 28 percent drop in revenues,
and said it expects ad sales to remain depressed early this year.
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- The company's board likely is mulling several possibilities
as it awaits the outcome of Stewart's trial, said management consultant
Peter Cohan in Marlborough, Massachusetts.
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- "One scenario is where she manages to avoid going
to jail, and she comes back" as CEO, he said. "The other scenario
is where she does go to jail, and they end up selling the company."
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- Company spokeswoman Elizabeth Estroff declined comment
about the trial's possible outcome. But she said the attitude at the New
York-based company remains "business as usual" and that morale
among its 550 employees is good.
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- "All of us at MSO stand squarely in support of Martha
and hope for a positive resolution," she said. "As company founder
and our chief creative officer, she is a continuing source of inspiration
and creative direction to all of us..."
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- Regardless of the trial's outcome, the company must grapple
with new competition, said Dennis McAlpine, an analyst at McAlpine Associates.
Time Warner Inc.'s (TWX.N: Quote, Profile, Research) home magazine Real
Simple and TV shows like "Queer Eye for the Straight Guy" and
"Trading Spaces" have encroached onto Stewart's territory, he
said.
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- The company, meanwhile, has been trying to distance itself
from Stewart -- a plan company executives say is unrelated to her legal
plight. It launched a new magazine called Everyday Food that does not prominently
bear her name and a program on caring for pets featuring a different TV
personality.
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- If Stewart is acquitted, she likely will be back at the
helm, Cohan said.
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- "The company's future depends on her getting back
and showing the world that not only were they (her accusers) wrong but
that she's still got it," he said.
- © Reuters 2004. All Rights Reserved.
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