What's Martha Stewart Cooking Up For Her Company?
Martha Stewart may sell the company that bears her name, Martha Stewart Living Omnimedia. Stewart has long enjoyed a reputation as a canny businesswoman as well as a decorator, cook and TV personality.
After going to jail in 2004, she resuscitated her career. But her company has been losing money, and is looking for a path back to profitability — possibly by being sold.
In 2010, Martha Stewart sold almost $43 million worth of products. But when the year ended, her company had lost almost $10 million. In fact, it's lost money seven out of the last eight years.
"It's really hard to pinpoint exactly what happened," says Robert Routh, the executive director of equity research at Phoenix Partners Group. He's been watching Martha Stewart Living Omnimedia closely, and he says several things went wrong.
"One thing obviously was the economy, right?" he says. "When the economy rolled over — that impacted any business like this because it's so dependent on the consumer in terms of eyeballs for the publishing and the broadcasting."
Magazines and books represent about 60 percent of Martha Stewart Living Omnimedia's revenues. But in the recession, advertising dried up and revenues declined. The same goes for the radio and TV part of her business.
The Justice Department accused Stewart of making fishy stock trades. And while she was acquitted of insider trading, she was convicted for obstruction of justice and served five months in prison.
Believe it or not, Routh says this was good for her company's share price. But not long after being freed, Stewart settled separate charges with the Securities and Exchange Commission and was banned from her own board for five years.
"And as a result of that, there were certain people that decided they didn't want to own the stock," Routh says.
Stewart had lost the confidence of Wall Street, but she still continued to sell merchandise.
Routh says sales of Martha Stewart products seldom hit the targets set in her 10-year deal with Kmart. Still, she made lots of money because the retailer was contractually obliged to pay her. That sounds like a good deal for Stewart but there was a downside.
"That deal really restricted the company's ability to enter into new markets and to develop certain products and deploy them as they would want to," Routh says.
Posting A For Sale Sign?
The Kmart agreement ended last year. Stewart's SEC ban is ending as well, and she is preparing to rejoin her board.
In May, the company hired the Blackstone Group — a firm you call when you're interested in finding a buyer. Stewart owns about half of the company's stock, but speaking on CNBC last week, she was coy about a possible sale.
"It depends! Everything depends on what it is," she said. "We are a valuable company."
Routh says a smart buyer will figure out how to bring down costs, while capitalizing on Stewart's big asset — her ability to connect with consumers.
Peter Krauss emerged from a Home Depot in Manhattan last weekend with two cans of medium gray Martha Stewart paint in hand.
"I'm doing some interior painting and the color that we liked was her color," he says. "I've used her products before. They work well, they behave well. Plus I like all her colors."
Analysts say if she wants to fetch a good price for her company, Stewart, who is 69 years old, will have to commit to remaining its public face.
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