Martha Stewart 2Q Profits Off 86%

Monday, August 11th 2003, 12:00 am

By: News On 6

NEW YORK (AP) _ Martha Stewart Living Omnimedia Inc., reeling over a scandal surrounding its namesake founder and former chief executive, posted an 86 percent drop in earnings in the second quarter as revenue fell 16.3 percent.

Still, the multimedia company surprised Wall Street by turning a small profit, beating analysts' projections that were downgraded in April when the company forecast a loss of 3 to 5 cents from continuing operations. But, Martha Stewart Living on Monday issued a downbeat outlook for the third quarter and full year, with losses much higher than Wall Street expected.

Shares of Martha Stewart Living were down 10 cents, or a little more than 1 percent, at $7.88 per share in morning trading on the New York Stock Exchange.

The multimedia company, which produces magazines, TV programs and merchandise, reported a profit of $931,000, or 2 cents per share, for the three months ended June 30. That compared with a profit of $6.7 million, or 14 cents per share, in the year-ago period.

Analysts polled by Thomson First Call had projected a 4 cent loss for the second quarter.

Revenues fell to $39.62 million from $47.32 million in the year-ago period.

``We believe that the Martha Stewart Living core brand will continue to be under pressure until resolution of Martha Stewart's personal legal situation,'' Sharon L. Patrick, president and chief executive, said in a statement accompanying the earnings report.

Still, the company expects a loss of 15 cents per share in the third quarter and a loss of 18 cents to 20 cents for the full year. Analysts polled by Thomson First Call had projected losses of 6 cents in the third quarter and 9 cents for the year.

Martha Stewart resigned as chief executive and chairman of her media company in June, hours after being indicted in a stock trading scandal that could land her in prison. She remains on the company's board and continues to serve as chief creative officer. A trial is set for January.

The indictment resulted from an investigation into Stewart's decision to sell nearly 4,000 shares of ImClone Systems Inc. on Dec. 27, 2001 _ the day before a troubling government report on ImClone sent its stock price tumbling.

Stewart is a personal friend of ImClone founder Sam Waksal, who pleaded guilty to securities fraud last fall and began serving a seven-year prison sentence last month.

Since the investigation became public in June 2002, Martha Stewart Living has seen its stock price tumble and has struggled with skittish advertisers. The company also has been stung by the financial problems of Kmart, whose exclusive Martha Stewart Everyday brand is the store's biggest label.

The company's publishing division, which accounts for about 60 percent of total revenues, continues to be the most vulnerable to the scandal.

Revenues were $39.6 million in the second quarter, down from $47.3 million in the second quarter of 2002. The results reflect lower advertising and circulation revenue at Martha Stewart Living magazine, partially offset by higher revenues from Everyday Food and Martha Stewart Weddings.

Everyday Food, which will begin regular publication after a six-month test, is the first magazine project not to have Stewart's name.

The company's television division posted revenues of $6.6 million in the April-June period, down from $7.2 million a year earlier. The decline in performance was due primarily to lower ratings and advertising revenue from the company's nationally syndicated daily show.

The company's merchandising posted revenues of $11.8 million, down from $16 million in the year-ago period.

Revenues in the Internet/Direct Commerce division were $7.8 million, compared with $8.1 million in the year-ago period.

For the six months ended June 30, the company posted a loss of $3.58 million, or 7 cents a share, compared with a profit of $6.51 million, or 13 cents per share, in the first six months of 2002. Revenues were $73.7 million, compared with $90.42 million a year ago.