Martha fans keep faith in business
|||Stewart's denial of guilt cited as crime|
By Anne D'Innocenzio
NEW YORK Can Martha Stewart's company survive the latest troubles of Martha Stewart?
Martha Stewart was indicted Wednesday in federal court in Manhattan on charges of securities fraud and obstruction of justice that, if upheld in a trial, could result in a prison term. Stewart, 61, pleaded not guilty to all charges.
"Without Martha, the company is only a shell. She's it," said Terry Gaudet, a stockholder from West Hartford, Conn., who was at Tuesday's shareholders meeting.
Others, however, haven't lost faith.
"The brand will survive because Martha has gone beyond being a person who represents a brand," said Jerry Della Femina, chairman of the Della Femina Rothschild Jeary advertising company, who has remained a fan of Stewart's.
Stewart, slapped with a nine-count indictment, said late Wednesday that she was relinquishing her responsibilities as chairman and chief executive of Martha Stewart Living Omnimedia, but will stay on its board. Stewart, who owns 61 percent of the company's stock, will continue to serve as chief creative officer.
The company named Sharon Patrick, president and chief operating officer, as chief executive. Jeffrey Ubben, founder and managing partner of ValueAct Capital Partners LP, an investment partnership that owns 22 percent of the company's class A common shares, has been elected chairman.
Arthur Martinez, director and former chairman and chief executive of Sears, Roebuck and Co., has been named lead director.
The developments came as the Securities and Exchange Commission filed a lawsuit seeking to ban Stewart from being a director of a public company including her own and limit her activities as an officer of a public company.
Stewart's indictment and her diminished role in her multimedia empire mark a dramatic turn of events for the company, which has been reeling since news broke last June that her name was tied to an insider trading scandal involving the shares of ImClone Systems Inc. Shares in Stewart's company have fallen by 50 percent and earnings have suffered.
Advertising and circulation revenues for Martha Stewart Living magazine have taken a hit. Some of her consumer base appears to have eroded, with company officials acknowledging in a recent conference call that magazine renewal rates have dipped.
The company's stock closed up a little more than 5 percent, or 48 cents, reaching $10 Wednesday on the New York Stock Exchange after dropping 15 percent Tuesday in anticipation of the indictment. Stewart's resignation was announced after regular trading hours.
Analysts expect some advertisers to pull back even more and believe that the indictment could keep retailers from striking new relationships with the company. What's more, readers of her magazine and buyers of her goods might react to the charges by turning away from her brand, says Seth Siegel, co-founder of the Beanstalk Group, a licensing agency.
However, Stewart executives are hoping consumers will behave like Lisa Schroeder, 39, who was at Kmart in Overland Park, Kan. "If I like the stuff, I'm going to buy it anyway," she said.
Kmart sells an exclusive line of home products under the Martha Stewart brand.
Laura A. Richardson, an analyst at Adams, Harkness & Hill, said executives "should be able to maintain a company without Martha " but "they are not very far along in that transition process" and they need "a turnaround plan."
Wendy Liebmann, president of WSL Strategic Retail, a consulting firm, said she expects the publishing side of the business which accounts for 60 percent of revenues to continue to be most vulnerable to fallout from the indictments, more so than sales of Stewart-branded retail products such as towels and housewares.
Ad pages, a key monitor of a magazine's health, fell 28 percent at Martha Stewart Living magazine in the first quarter compared to the same period last year, according to Media Industry Newsletter.
TV revenues were $6.6 million in the first quarter, compared to $6.7 million in the prior year's quarter.
At least some major advertisers are sticking by Martha Stewart's magazines, however.
Kmart said in a statement that Stewart's home furnishings remain "a Kmart customer favorite and continue to sell well overall."
Campbell's Soup Co. spokeswoman Michelle Davidson said her company has no plans to change its advertising arrangements with Martha Stewart Living magazine.
"We don't think her personal legal difficulties have anything to do with the quality of the organization and the publications it puts out," Davidson said.