Treats for Martha Stewart Living

Investors turned sweet on the stock Tuesday after the media company reported a narrower than expected loss and sees growth ahead

Martha Stewart Living Omnimedia (MSO) celebrated Halloween with a sweet pop in its stock price -- up 5% to $21.22 -- after the company reported third-quarter results. Speculation that the media and publishing company could be entertaining offers to be taken private also stoked investors' interest, according to news reports. Indeed, the stock has had a bewitching comeback -- up 44% since hitting a 52-week low of $14.76 on July 25, and hovering near a 52-week high of $22.50 set on Oct. 25.

Martha Stewart's revenues in the quarter rose 48% from a year earlier to $61.1 million, driven by a strong performance in publishing, which includes magazines such as Everyday Food and Martha Stewart Living, and significantly improved year-over-year figures for all business segments. That was ahead of analysts' forecast for revenue of $56 million.

The company recorded a net loss of $25.2 million, or 49 cents a share, compared with a year-earlier loss of $26.1 million, or 51 cents a share. This included a litigation reserve related to a securities class action brought against Martha Stewart in connection with her securities fraud trial. Excluding the reserve, the company lost 13 cents a share, while Wall Street projected a wider loss of 18 cents.

President and CEO Susan Lyne said in a press release that its publishing segment "posted significant gains, with advertising revenue increasing 75% as a result of robust demand from our advertisers." She also noted recent new products coming in its merchandising unit, including plans to introduce a paint color program with Lowe's (LOW). In its Internet segment, it launched Martha Stewart-branded digital photo products with Kodak (EK) and forged a new content relationship with Yahoo! (YHOO). And the company will produce a third season of The Martha Stewart Show with NBC's owned and operated stations.

Lyne also expressed optimism about the coming year (see BusinessWeek, 11/9/06, "The Reinvention Of Martha Stewart"). "As we approach 2007, we are confident that initiatives such as our new Martha Stewart Collection for Macy's and the relaunch of our website will provide additional growth as we execute our strategy to thoughtfully leverage our brand," she said in a press release.

She also noted that the company is "close to resolving the pending class action; we have taken a one-time legal reserve this quarter in anticipation of a settlement and look forward to putting the last litigation relating to the events of 2002 behind us."

The company expects revenue for the fourth quarter in the range of $91-$95 million, operating income in the range of $10-$11 million and adjusted EBITDA in the range of $16.5-$17.5 million. For the full year 2006, it said it is "comfortable" with the high-end of our previous full-year revenue guidance of $270-$280 million, and expects an operating loss of $6.5-$7.5 million with adjusted EBITDA in the range of $14.5-$15.5 million. This includes an investment in Blueprint magazine of $6-$7 million, as well as nearly $4 million in expenses for the development of its Internet business, the company says.

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