Has the public soured on Martha Stewart?

Indeed, her influence over consumers may not be as weak as it seems. Remarkably, Stewart has the power to sell homes in the depths of a severe housing recession. Martha Stewart-branded houses from the home builder KB Home (KBH, news, msgs) sell twice as well as other homes in the same communities. "Our partnership with Martha Stewart continues to generate tremendous excitement across the country," KB Home CEO Jeffrey Mezger said in his company's quarterly conference call in September. "We are driving to open as many Martha communities as we can."

Plus her flagship magazine, Martha Stewart Living, is still a big hit among advertisers. The number of ad pages jumped by over 30% in October, building on solid gains earlier this year. For most of 2007, the magazine has had more ad pages than it's had since 2002. The company's Everyday Food magazine has shown similar strength. The magazines are holding circulation levels or posting slight gains -- a positive in an industry beset by readership declines.

So the bad TV and merchandising numbers may not really be the ominous signs critics claim. TV ratings are down in part because daytime TV ratings are weak overall, says Sidoti analyst Rich Tullo who has a "buy" rating and a $19 price target on MSO stock. Ratings are also poor because NBC moved the show from a familiar time slot to a new position following a show with rock-bottom ratings, says Lyne.

Kmart sales are weak because the chain has been closing stores and reducing shelf space by eliminating product lines, says Bear Stearns (BSC, news, msgs) analyst Michael Meltz. The chain has been running down Martha Stewart inventory ahead of the launch of a new line of home goods in Kmart this fall.

A Martha makeover

These kinds of deals demonstrate that big retailers still see a lot of power in the Martha brand. "Retailers still want the brand in their stores because it has an incredible ability to attract consumers and get them to buy not only Martha stuff, but whatever else they are selling," says Robert Routh, who used to cover Martha Stewart Living Omnimedia as an analyst at Jefferies and now owns shares of the company as a private investor.

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Macy's declined to say how well home-furnishing goods in its Martha Stewart Collection are selling since the official Sept. 10 launch. But in Macy's quarterly conference call in August, Chief Financial Officer Karen Hoguet described early sales trends for the products already on the shelves as "very encouraging." She noted that 35% of bridal registries in July included Martha Stewart products, even before the full lineup had hit the floors.

The deal to sell Martha-branded food products through Costco takes the domestic diva back to her origins as a caterer who offered food tips in her first book, called "Entertaining." She will sell about 50 prepared and ready-to-eat food products through Costco. Products will roll out in January, but Costco-related sales won't boost Martha Stewart Living's bottom line in a meaningful way until later in 2008, the company says.

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Katonah vs. Martha Stewart
Her company's attempt to patent the name Katonah has some residents of this New York town up in arms.

One reason Martha Stewart Living Omnimedia stock may be weak is that the company has no debt and about $80 million in cash. Investors may be penalizing the company for not buying back stock and not taking on debt to make growth-boosting investments, Routh says. But Martha Stewart Chief Financial Officer Howard Hochhauser says MSO is holding on to its cash for possible acquisitions and planned investments. He says if the stock price is still this low in eight to 12 months, the company would consider buying back stock.

At the time of publication, Michael Brush did not own or control shares of companies mentioned in this column.

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