Martha Stewart

NEW YORK (CNN/Money) - When a somber Martha Stewart stood before television cameras last fall and announced her decision to go to prison rather than await an appeal on her criminal conviction, the lifestyle pro wistfully said she hoped to be out in time to plant her spring garden.

With just two weeks left to her five-month stay at a federal prison in West Virginia, the 63 year-old Stewart should have plenty of time to tend to her tulips.

Meanwhile, spring appears to have come early to Martha Stewart Living Omnimedia, the publishing and retail company Stewart founded and led until her conviction a year ago on charges that she lied to government investigators looking into her well-timed personal stock sale in late 2001.

The New York-based company's stock, at around $35.50 a share, has shot up 300 percent since the eve of Stewart's July sentencing and is trading near record levels.

Investors are betting heavily on the company's future once Stewart returns -- if not as an executive, as the Securities and Exchange Commission wants to prevent, than at least as the creative brains behind it.

Next week, however, investors will likely be reminded that the company's business isn't coming up roses just yet.

Martha Stewart Living Omnimedia is due to announce its 2004 fourth-quarter and year-end results on Feb. 23. Analysts surveyed by Thomson First Call expect a fourth-quarter loss of 17 cents a share, compared with a profit of 10 cents a share a year earlier. Revenue for the quarter is expected to be down more than 20 percent from the same prior-year period.

And, for the second consecutive year, the company will post a net loss on an estimated 25 percent drop, to $183 million, in revenue.

All five analysts covering Martha Stewart Living Omnimedia, according to Thomson First Call, have either a "sell" or "strong-sell" rating on the company's shares.

Michael Meltz, a Bear Stearns analyst, wrote in a research report last month that the recent stock surge has been "overdone" and warned that investors may be overly optimistic about a 2005 rebound at the company.

Dennis McAlpine, an independent analyst, told clients recently he was "hard pressed" to understand the stock's run-up given the company's weak bottom line.

Analysts note the company's core publishing business, dominated by its flagship Martha Stewart Living magazine, remains on shaky ground.

The unit, which contributes the bulk of company revenue, saw annual sales drop from $177 million in 2001, the year before Stewart's legal problems started, to $136 million in 2003 and continued to fall throughout 2004.

The losses have been led by steep declines at Martha Stewart Living. Since 2002, advertising revenue at the monthly magazine has plunged nearly 70 percent, with ad pages off by 65 percent, according to the Publishers Information Bureau.

Company officials have said they don't expect to see an advertising rebound until the second quarter of this year, beginning in April -- a month after Stewart exits prison.

Even if that happens, analysts remain worried about the stiff competition for ad dollars from the likes of O: The Oprah Magazine, Better Homes and Gardens and a flurry of new launches, among them Shop Etc., Cottage Living, and InStyle Home.

"Large national marketers have significant choice....," wrote Meltz, "and MSL is no longer as much of a 'must-buy' as it may have been a few years ago, in our opinion."

To be sure, Meltz and others note there are encouraging signs that Martha Stewart Living, whose survival as a stand-alone public company was in doubt as Stewart's legal woes worsened last year, has turned a corner.

Late last year, the company axed CEO Sharon Patrick, replacing the longtime Stewart deputy with Susan Lyne, a veteran ABC television executive who helped engineer a turnaround at the Walt Disney-owned network before leaving in a management shakeup last spring.

And a new television deal with Hollywood golden boy Mark Burnett, the creator of hits such as "Survivor" and "The Apprentice," is generating enthusiasm and the positive headlines that the company needed when Martha's legal troubles dominated the news.

Burnett is working on two television shows starring Stewart, a daily syndicated talk show and a spinoff of "The Apprentice" with Stewart as host and judge.

The television projects don't have a big direct upside for Martha Stewart Living. But for a company whose fortunes are tied to Stewart, that may not matter as long as a positive image draws consumers and, in turn, advertisers.

Burnett, for one, is confident that's going to happen. "People love redemption stories," Burnett said during a December press conference about the daily show in development.

Marketing experts agree that the buzz Martha Stewart Living Omnimedia has generated lately is especially good for company business.

Even so, "it's not out of the woods yet," said Robert Passikoff, president and founder of Brand Keys, a New York marketing firm.