Televisionpoint.com Team Martha Stewart Living Omnimedia Inc. said Thursday its third-quarter loss widened from a year ago, as charges associated with its reality prime-time TV show offset a solid increase in revenue from its publishing division.
The company also projected fourth-quarter earnings below Wall Street expectations and acknowledged disappointing ratings for its syndicated TV talk show called "Martha." The news sent shares falling 8.5 percent, or $1.80, to $19.40 in morning trading on the New York Stock Exchange.
For the three months ended Sept. 30, the New York-based multimedia company lost $26.07 million, or 51 cents per share, compared with a loss of $14.97 million, or 30 cents per share, in the year-ago period.
The results included a $10.8 million, or 21 cents per share, non-cash charge related to the launch of "The Apprentice: Martha Stewart," a reality show in which the company has no economic interest, but which provides brand visibility.
Total revenue rose 5.7 percent to $40.85 million from $38.65 million in the year-ago period. The sales figures were in line with Wall Street's expectations for $41 million.
"With new initiatives under way in every area of the business, the revitalization of MSLO is firmly underway," said Susan Lyne, president and CEO, in a statement. "Third-quarter earnings were modestly ahead of expectation, largely on the strength of our core publishing business."
But while initial viewer response to "Martha," which aired Sept. 12, has been strong, Lyne said ratings for the first five weeks were "below expectations." The company is tweaking the format to make it more instructional, and thought the past two weeks saw improvements in ratings, they still remain below the company's original projections, Lyne said.
Still, Lyne said "Martha" is giving a boost to the overall business, citing a 50 percent increase in traffic to the company's Web site from a year ago, a dramatic increase in online magazine subscription sales and improved sales of Martha Stewart Living Everyday products at Sears Holding Corp.'s Kmart stores since the show's debut.
The TV shows are part of the company's strategy to polish Stewart's image and bolster her visibility, which has been in overdrive since she was released from prison in March after a conviction for lying about a stock sale. Stewart is also reaching out to new viewers, with plans to develop a new home-improvement reality TV show next year, as well as new books, how-to DVDs and a radio show this fall.
The latest partnership, announced earlier this month, is with KB Home, one of the nation's largest home builders, which will build a line of new houses inspired by the domestic queen's three homes in New York and Maine.
Revenue in the company's publishing division rose 24 percent to $27.6 million from $22.2 million in the year-ago period. Adjusting for Body + Soul magazine, which was acquired in August 2004, revenue increased 18 percent. The revenue growth was driven by higher advertising revenue in both its flagship magazine called Martha Stewart Living and Everyday Food.
Advertising pages in Martha Stewart Living increased 48 percent in the quarter, ahead of its projections for 35 percent growth. Everyday Food enjoyed a 21 percent increase in advertising pages.
The company said it expects strong growth in ad pages and revenue to continue throughout the remainder of 2005 and for 2006. Based on current trends, the company now expects fourth-quarter advertising pages in Martha Stewart Living to double year-over-year.
Revenues in the television division in the third quarter were $3.4 million, compared with $2.2 million in the year-ago period. The quarter included three weeks of contribution from the new syndicated daily talk show.
Merchandising revenues rose to $8.3 million, up from $8.0 million in the year-ago period. The revenue increase was principally related to payments from its program with Sears Canada. Sales of Martha Stewart Everyday products at Kmart declined in the quarter.
Revenues in the Internet/Direct Commerce unit, which has been pared down to its online flower business, were $1.6 million, compared with $6.2 million in the year-ago period.
The company said it expects operating profit to break even in the fourth quarter, hurt by higher corporate expenses principally due to higher consulting and professional fees. Analysts polled by Thomson First Call expected a profit of 24 cents.
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