On the heels of a disappointing fourth quarter — one that saw its black ink change to red — Martha Stewart Living Omnimedia is restructuring its Internet and catalog division. In addition to reducing circulation of Martha Stewart the Catalog for Living and the number of products sold in the catalog and on the Website, the company has eliminated 40 positions and taken a $7.7 million charge related to the restructuring.
During the fourth quarter ended Dec. 31, revenue within the Internet and catalog division was $13.7 million, down 18% from $16.7 million for the fourth quarter of 2001. The decline came despite a 17% increase in catalog circulation. The division lost $7.3 million before interest, taxes, depreciation, and amortization during the quarter, compared with a loss of $5.8 million a year earlier.
In the third quarter of the year, the company will reduce circulation to 3 million catalogs, in four drops annually. “The product assortment will consist of quintessential Martha Stewart-branded, highly themed, and seasonally oriented merchandise,” president/chief operating officer Sharon Patrick said in a March 4 conference call with investors and analysts. “The restructured business will require far fewer people, running a much simpler business, involving far less financial risk.” The company expects to “eliminate all losses in this segment,” she added.
Also during the call executive vice president/chief financial officer James Follo said that the direct division would be “right-sized and reorganized as somewhere in a $20 million revenue business going forward.” The division’s 2002 sales were $36.9 million, down 20% from $46.1 million in 2001.
“The direct-to-consumer division has been struggling for years to reach profitability,” says Laura Richardson, an analyst with Boston-based equity research firm Adams, Harkness, and Hill. “I don’t think it’s ever been profitable.” Richardson believes that the company made a mistake in investing so heavily in its e-commerce business and adding home decor SKUs, saddling the division with too much inventory.