NEW YORK (CNN/Money) - Media and home decor retailer Martha Stewart Living Omnimedia Inc. reported improved second-quarter results Wednesday that slightly exceeded Wall Street expectations, but warned that it doesn't expect to meet third-quarter or full-year estimates due to the stock scandal involving its namesake CEO.

The warning helped send the shares of Martha Stewart Living (MSO: down $1.35 to $8.65, Research, Estimates) tumbling about 20 percent to $7.25 early Wednesday. They have since edged up to $8.05, but the stock is down some 60 percent from its initial public offering price of $18 a share in late 1999.

The company earned $8.1 million, or 16 cents a share, from continuing operations, up from $5.6 million, or 12 cents, on the same basis a year earlier. The consensus forecast of analysts surveyed by earnings tracker First Call was 15 cents.

The company said it has "begun to see some impact on our business resulting from the uncertainty relating to the investigations of Martha Stewart's stock sale." It said because of that impact it now expects to earn 6 or 7 cents a share in the third quarter, a drop from the 10 cents a share earned in the year-ago period and below the gain of 15 cents a share based on First Call's analyst survey.

It said due to the uncertainty it can't provide fourth-quarter guidance, but that it will not meet full-year earnings-per-share guidance of 53 cents. First Call's full-year earnings-per-share estimate is 54 cents, up from 45 cents in 2001.

The warning comes amid the results of a survey earlier this month showing that Stewart and her products are losing some of their luster with consumers.

CEO Martha Stewart has been the focus of an investigation into whether she benefited from insider information when she sold nearly 4,000 shares of biotechnology firm ImClone Systems (IMCL: Research, Estimates) stock in December, when the company was run by a friend of hers. Stewart has denied any wrongdoing in the sale, which came a day before the announcement that the Food and Drug Administration would not review an application for the company's key cancer drug. But the news reports about the stock sale have depressed the value of Martha Stewart Living Omnimedia stock and apparently have begun to impair the company's sales.

The company said it believes it is in a good position to weather any short-term business impact that may arise from the investigation of Stewart. It pointed out that it had cash of $160 million at the end of the quarter, or more than $3 a share, and no debt.

"We are very pleased with our results for the second quarter," said a statement from Stewart. "They underscore the strength of our brand, (and) reflect continued demand."

Total revenue during the quarter rose 16 percent to $78.6 million, just short of the First Call revenue forecast of $79.6 million. Television, publishing and merchandising revenue all increased. But revenue from Internet or direct sales of products to consumers was off 27 percent to $8.1 million.

During the quarter the company decided to close certain operations of The Wedding List. Including discontinued operations, the company had net income of $6.7 million, or 14 cents a share, up from $5.2 million, or 11 cents a share, a year earlier.