NEW YORK (CNN/Money) -
Three weeks ago Martha Stewart took a gamble.
Convicted of lying during an insider trading probe, Stewart opted to go to prison -- despite her claims of innocence and the possibility that an appeals court may vindicate her -- in part to try to stop the hemorrhaging at the decorating and media company she built into a mini-empire.
But three weeks into Stewart's five-month stay at a minimum-security prison in West Virginia, it's not clear whether that strategy is paying off for her company, Martha Stewart Living Omnimedia -- or if it ever will.
On Thursday Martha Stewart Living Omnimedia posted a bigger third-quarter loss of 30 cents a share, or $14.8 million. The good news was the loss wasn't as bad as analysts had forecast.
And CEO Sharon Patrick offered up a dose of optimism, telling analysts during an early afternoon conference call that the recent moves by Stewart to put her legal mess behind her have been good for the company.
"We're beginning to see renewed interest, not only in the television arena but also from advertisers," said Patrick, referring both to recently announced plans to launch a prime-time television show next fall starring Stewart and efforts to lure advertisers back to the company's flailing flagship magazine, Martha Stewart Living.
But Patrick offered few details, other than to say that she expects the turnaround to begin in the second quarter of 2005, when Stewart is out of prison and serving an additional five months of home detention, and to gain momentum as the year progresses. Stewart, who is barred from working while behind bars, will be allowed to spend up to 48 hours a week on Martha Stewart Living Omnimedia business during her home confinement.
While Patrick said company officials are "beginning to become increasingly optimistic" about an advertising rebound, some company watchers were skeptical that a broader recovery is near.
The data coming out of the company is "inconclusive," said Howard Davidowitz, a New York retail consultant and investment banker. "All we know right now is that the company continues to head south. That's what we know. Everything else is unknown."
A loss is still a loss
Martha Stewart Living Omnimedia reported Thursday a loss of $14.8 million, or 30 cents a share, from continuing operations, wider than the loss of $3.8 million, or 8 cents a share, on that basis a year earlier. But analysts surveyed by earnings tracker Thomson First Call had forecast losses of 47 cents per share.
James Follo, the chief financial officer, warned that losses in the fourth quarter could be 20 cents a share. Thomson First Call expected a loss of 7 cents per share.
Despite the ominous guidance, shares of Martha Stewart Living Omnimedia (Research) rose on the pre-market report and closed the day more than 3 percent higher, to $18.69. That closing price is 40 percent higher than its opening price on Sept. 15, the day Stewart, 63, announced she would go to prison now rather than await the outcome of her appeal.
Investors apparently found relief in Patrick's prediction of an advertising rebound in 2005. She also highlighted other recent corporate moves, including previously announced plans for a new television show in fall 2005 starring Stewart and produced by Mark Burnett, creator of such hit shows as "Survivor" and "The Apprentice."
Another plus for the company: $151 million in cash and short-term investments and no debt. Analysts said the strong balance sheet at least gives Martha Stewart Living Omnimedia the foundation it needs to engineer a comeback.
Looking back, the need for a cash cushion is apparent.
The company's overall revenue was off 24 percent to $38.7 million. The company saw a broad decline in revenue across all its sectors.
Publishing, its largest segment, saw about a 24 percent drop to $22.3 million. A 40 percent increase in revenues from its year-old Everyday Food magazine was offset by a big drop in ad pages and lower circulation revenue from Martha Stewart Living. The flagship monthly was re-launched in September with a new logo that de-emphasized the "Martha Stewart" name and added new columns.
Television revenue dropped by two-thirds to $2.2 million due to lower licensing fees and ad revenues.
The publishing and television revenue declines plunged both segments into the red after being profitable a year earlier.
The merchandising and direct marketing revenue units both posted drops of less than 10 percent. Merchandising was the only segment to post an operating profit, earning $4.9 million, up 3.3 percent from a year earlier.
That increase came despite a 9.7 decline in same-store sales of Martha Stewart Everyday home furnishing products at Kmart (Research). Under terms of a new deal brokered with Kmart this spring, Martha Stewart Living Omnimedia receives a higher royalty rate than it did a year ago.
"We continue to benefit from strong consumer support for our products," Patrick said in a statement. "Our stalwart customer loyalty, now coupled with the closure brought by Martha's decision, provides the foundation for early signs of a rebound," she said.