Friday's verdict not only jeopardizes the business empire Martha Stewart built as America's leading homemaker and widely embraced arbiter of style and fashion.

It also jeopardizes a crucial part of Kmart's plan to rebuild its discount store business around name-brand merchandise like Stewart's — everything from cookie cutters and garlic presses to bed sheets and pillows.

The stock of Stewart's company, Martha Stewart Living Omnimedia, dropped 22.6 percent Friday to close at $10.86.

Her role at the company she built into an empire that included television, radio, a magazine and products from paint to coffeetables is now unclear.

She resigned as Omnimedia's chief executive after being indicted last June for obstructing justice and lying to the government. Now she'll almost certainly be removed from the board of directors.

But her job as the company's chief creative officer also is in doubt, as is her future as the star of its programs and publications.

Her TV show, for example, will air tomorrow. But no one knows if it will be on a month from now.

After the verdict, Omnimedia said its board would meet "promptly to carefully evaluate the current situation and take actions as appropriate."

Peter Henning, a Wayne State University law professor who specializes in white-collar crime, said the board would have to remove Stewart because of her conviction. Otherwise, the company would not meet New York Stock Exchange requirements for listing its stock.

Kmart Holding shares fared better Friday, dropping just 1.2 percent to close at $32.51.

But the nation's third-largest discount retailer is trying to rebuild itself with name-brand merchandise that also includes Joe Boxer, Sesame Street, Thalia Sodi and Jaclyn Smith.

So how its customers react to the Stewart verdict could affect sales of its biggest name-brand draw.

"Kmart was saddened to hear that Martha Stewart was found guilty today in U.S. federal court," said Kmart spokesman Jack Ferry. "We have no further comment at this time."

Kmart has said it sells about $1.5 billion worth of Martha Stewart Everyday products a year. Kmart's total sales were about $23 billion in 2003.

The guilty verdict didn't matter to some Kmart shoppers Friday. Howard House of Detroit was looking at Martha Stewart Everyday drinking glasses at the Detroit store with his wife, Evelyn House.

The name on the box doesn't matter to Howard House because he likes the quality of the glasses.

His wife, however, said: "I won't drink out of the Martha glasses.

It's the principle of it. She knew better."

Kmart has stood behind Stewart throughout the scandal, continuing plans to introduce new products throughout this year in the nine lines she sells at the Troy, Mich.-based retailer's 1,500 stores.

The only public nick in the Kmart-Martha Stewart partnership appears to be a lawsuit filed two weeks ago. Kmart sued a subsidiary of Stewart's company to reduce royalty payments for Martha Stewart Everyday products sold at its stores from $52 million to $47.5 million for the 2003 fiscal year that ended Jan. 31.

Robert Passikoff, president of Brand Keys Inc., a New York-based brand research company, said that could be a first step toward ending Stewart's contract with Kmart, which expires in 2008.

"Do people who are branded partners go to court over $4 million? One wonders if the honeymoon isn't over," Passikoff said.

Passikoff and Gary Ruffing, a former Kmart sales and marketing executive who is now a retail consultant with BBK Ltd. in Southfield, Mich., say there probably is a morals clause in the contract that would let Kmart drop Stewart if her image is so tarnished it affects sales of the products.

"It certainly puts them in a position where they have to find an alternative that people can believe in and trust in," Ruffing said. "I'm sure they have a fallback position both legally and in product."

Martha Stewart Living Omnimedia Inc. has suffered because of the scandal; her shares have lost about 40 percent of their value since the federal investigation began in 2002.

The company's revenue fell from $295 million in 2002 to $245.8 million in 2003.

Revenue from merchandise including the Martha Stewart Everyday products sold at Kmart was $53 million in 2003 — up from $48.8 million in 2002.

Her publishing business has been hit hardest throughout the ordeal as advertisers pulled out of Martha Stewart Living and circulation dropped. Publishing revenues dropped 25.6 percent to $135.9 million in 2003.

Throughout the scandal, Stewart has made some effort to distance herself from the company by stepping down and launching new ventures, such as the magazine Everyday Food, without her name. Passikoff said the brand was convicted when Stewart was, so trying to go on with the company with its namesake either in prison or barred from being involved with the business could be difficult.