Martha Needs Some Polish

With Stewart's prime-time show a disappointment and MSO posting deficits, can new magazines and a line of crafts lift the stock?

Martha Stewart has had a busy week. She announced the launch of her much-anticipated lifestyle magazine, Blueprint, as well as a crafts line. Less trumpeted was a Jan. 6 federal Appeals Court decision that upheld her conviction on charges of lying about the circumstances surrounding her sale of ImClone (IMCL ) stock.

Diane Brady, a senior editor for BusinessWeek, looks at what's ahead for America's domestic maven and why Martha Stewart Living Omnimedia (MSO ) stock remains sluggish in the face of so much news.

How important is this new magazine?
Blueprint is another effort to build on Stewart's talent base without depending on her personal cachet. Like her previous titles, Everyday Food and Body & Soul, the publication won't carry her name or rely on content from Stewart. That's a good thing, as this company has struggled to build an identity distinct from its founder.

But Blueprint could also face significant obstacles on the path to success. For one thing, there's hardly a gap in magazines that aim to tell women between 25 and 45 everything they need to know about decorating, dressing, and organizing their lives.

Real Simple, from which MSO plucked Blueprint's new editor, Tom Prince, already helps that group clear out the clutter in their lives. And magazines like Lucky help them figure out what to wear and where to buy it. Besides, while Stewart may be an acknowledged expert in decorating and entertaining, would anyone turn to her company for advice on how to dress? That said, MSO can tap into an impressive talent base and advertiser network for its new offspring.

With all the new products coming down the pipeline, why is MSO stock still in the doldrums?
For all the activity around MSO these days, it has failed so far to produce what investors love the most: profits. It posted an operating loss of $26.9 million in the third quarter, down from $16.2 million the year before. While increased ad revenue for Martha Stewart Living and new products like the DVD collection should help fourth-quarter results -- due to be announced soon -- MSO remains in a tough situation.

Stewart's prime-time reality show, The Apprentice: Martha Stewart, was a disappointment and won't be back for a second season. The numbers on her daytime talk show haven't floored advertisers. Even The Tyra Banks Show posted better audience ratings recently. As longtime MSO analyst Dennis McAlpine puts it: "The reality is that a lot of that stuff hasn't worked out."

More important, perhaps, there's a feeling that the post-prison euphoria surrounding Martha Stewart has yet to work itself out. The median price target for the stock, according to analysts polled by Thomson One Analytics, is $14.50 -- about $3.50 less than the current price, which is already less than half the giddy highs it hit in February as new deals began to emerge for the then-imprisoned Stewart.

Is Stewart overrated?
When it comes to matters of the home, nobody gets it like she does. Americans trust her to tell them what to do with their turkey and how to decorate the family room. Products that tap into her areas of expertise, like the new crafts line, have a strong chance of success. And her talk show is a hit with her loyal audience. There may even be a market for the Martha-themed homes being hawked by KB Home at the moment, though the direction of the housing market and the theme-park aura of the venture do dampen excitement over that one.

But many feel there are limits to how big she can get. MSO continues to depend heavily on the personality of Stewart and is living with a brand that, at the very least, has changed since its perfectionist founder went to prison. While Stewart remains a resilient and talented woman determined to teach (and equip) Americans in the domestic arts, she's proven fallible. And her failed prime-time reality show proved, too, that celebrity doesn't always translate into ratings or sales.

What's next?
MSO officials, led by CEO Susan Lyne, may find new ways to build on the Martha Stewart franchise in the coming year. And America's favorite homemaker will continue to command headlines. But the real test of success will be whether the hoopla surrounding MSO will translate into solid and sustainable profits for her company.

READER COMMENTS

Brady is a senior writer for BusinessWeek in New York

BW MALL SPONSORED LINKS

Mutual Funds at Fidelity Benefit from years of mutual fund management experience.
Internet Marketing Bachelor's Degree Learn Effective Internet Marketing Strategies While Earning a Bachelor's Online!
Email Marketing with iContact New Businesses are shifting their marketing spend to email marketing: Are you?
Free Credit Report-$0 Totally Free Instant Credit Report. Unlimited Access to 3 Credit Scores!
The Business of Entertainment Learn Management, Artist Relations, Producing and More with an Online Degree.

Buy a link now!

Get BusinessWeek directly on your desktop with our RSS feeds. XML

Add BusinessWeek news to your Web site with our headline feed.

Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.

To subscribe online to BusinessWeek magazine, please click here.

Learn more, go to the BusinessWeekOnline home page