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Martha Inc.: Beginning of the end?
Analysts say Stewart's guilty verdict puts into serious doubt the future of the company she founded.
March 15, 2004: 12:25 PM EST
By Parija Bhatnagar, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The future of Martha Stewart Living Omnimedia is in serious doubt, industry watchers said Friday, after a jury found Martha Stewart guilty on all four counts in her obstruction of justice trial.

"The brand as we know it is dead. Any brand that's built exclusively around a single personality can't survive something like this," said Howard Davidowitz, a retail consultant and president of Davidowitz & Associates.

MSO shares rallied prior to the verdict, but then tumbled 22 percent after the verdict was read.  
MSO shares rallied prior to the verdict, but then tumbled 22 percent after the verdict was read.

"We're likely to see advertisers pull away. They would much rather invest in Oprah's media publishing empire rather than associate with the Stewart brand now."

Shares of Martha Stewart Omnimedia (MSO: Research, Estimates) tumbled nearly 22 percent following the verdict. Trading was temporarily halted by the New York Stock Exchange just prior to the verdict announcement. Before the halt, shares had been up sharply Friday.

"We are deeply saddened by the news of Martha Stewart's conviction, and our thoughts are with her in this difficult time.... Our board of directors will meet promptly to carefully evaluate the current situation and take actions as appropriate," the company said in a statement.

"In the meantime, we are confident that our assets -- our senior management team, our talented employees, our quality brand labels, our Omni business model and infrastructure, and our financial strength reflecting $169 million cash in the bank and no debt -- are more than sufficient to continue MSO's development as a leading 'how to' brand building company."

Stewart issued a statement on her Web site marthatalks.com Friday in which she said she will appeal the verdict and "continue to fight to clear my name."

The consensus among industry watchers, however, appears to be that the Martha Stewart brand possibly might not recover, especially if Stewart goes to jail.

Robert Passikoff, a New York-based brand consultant who has been tracking the Martha brand for nearly three years, agreed.

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Martha's close friend, Dominick Dunne, comments on the reaction inside the courtroom when the verdict was read.

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"This company, as it is configured today, is unsuited to compete in the marketplace with its brand taken away," said Passikoff. "This is no longer the same company that we knew 10 minutes ago or even 22 months ago."

"Will the company survive? That remains to be seen," Passikoff said. "The immediate thing for MSO to do is distance the company from Stewart."

That process apparently was already under way as MSO's revenue, advertisers, readers, and stock value leaked away during the controversy.

Over the past year, the company launched a new magazine -- Everyday Food -- that doesn't feature her name prominently on the cover, and also a new TV show called "Pet Keeping with Marc Morrone" that excludes Martha entirely.

New York-based Martha Stewart Living (MSO: Research, Estimates), which runs publishing, television and merchandising divisions, on Thursday reported a better-than-expected quarterly profit but warned that it expects its founder's trial to hurt advertising revenue in the current period. MSO also posted the company's first yearly loss since it went public in 1998.

Revenue from the publishing unit, which accounted for more than half of total sales in 2002, fell 26 percent in 2003 versus the year-earlier period. The company reduced the circulation guaranteed to advertisers of its flagship magazine -- Martha Stewart Living -- to 1.8 million from 2.3 million.

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Analysts also say MSO's partnership with Kmart, the biggest distributor of Martha Stewart home products, looks increasingly shaky. The retailer recently filed a lawsuit alleging it was overcharged. Sales at MSO's merchandising unit fell 16.6 percent in the first nine months of 2003.

"I think at least a third of consumers that previously bought her products will abandon the brand," said Britt Beemer, senior analyst with America's Research Group. "A number higher than that means the brand is dead."  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.