Martha Stewart’s Direct Division Lays Off 40 Workers

On the heels of a disappointing fourth quarter—one that saw its black ink change to red—publisher/marketer Martha Stewart Living Omnimedia (NYSE: MSO) 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 took 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 this 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 said.

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, now 20% from $46.1 million in 2001.

For the year ended Dec. 31, Martha Stewart Living Omnimedia netted $7.3 million, down 69% from $21.9 million the previous year. Revenue totaled $295.0 million in sales, up slightly from $288.6 million in 2001. In addition to the catalog and Website, the company includes the “Martha Stewart Living” magazine and the Martha Stewart brand of merchandise sold at Kmart.

Stewart is still under investigation for her role in selling biotech company ImClone Systems’ shares just before its collapse. ImClone chief Sam Waksal is alleged to have tipped off Stewart. Though Stewart claims no wrongdoing, the investigation is taking its toll on the company. “Our business continues to be negatively impacted by the ongoing uncertainty,” Patrick said in a statement. “Until this situation is resolved, we will likely continue to face challenges throughout our businesses.”

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