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Jail suits Martha Inc.

Company shares jump as Stewart sentenced

This article was updated on July 18, 2004 at 11:27 a.m.

Martha Stewart may be packing her bags for a five month prison sentence, but her company is finally getting a reprieve.

The homemaking media mogul on Friday was sentenced to a relatively light five month jail term with another five months under house arrest in tony Bedford, N.Y. for lying to federal investigators about a stock trade.

The news sent shares in her battered media-and-retail empire, Martha Stewart Living Omnimedia, soaring 36% Friday, with investors relieved that the company’s driving personality won’t be behind bars for more than one television season.

“I’ll be back. I hope the months go by quickly,” she said. “I’m not afraid whatsoever … just very sorry it’s come to this,” Stewart told a throng of gathered media outside the courthouse Friday.

Her company has been under intense financial pressure in the years since the trading scandal began. Revenue from magazine publishing and television advertising and syndication fees have fallen steadily since 2003, but the greatest damage to the franchise may have already been done.

“We’ve done three rounds of research and every time we talk to people they say they love the magazine,” said Brett Stewart, senior VP and media buyer at Universal McCann. “The brand has surpassed the personality.”

The magazine suffered advertising and circulation declines in the wake of the scandal, but Stewart attributes much of the losses to increased competition from Martha imitators, including Time Inc.’s Real Simple.

For months, the company has been circulating alternate cover treatments to media buyers that further minimize the “Martha Stewart” name.

The sentence — unless successfully appealed — will prevent Stewart from taping her show, but new episodes have already been suspended and dropped from CBS. The library is being carried in syndication on the Style Network.

“What it does from our perspective is give the Martha fan a place to see her on TV,” said Style veepee Steve Schwartz. “She has a strong fan base and we’re happy to be part of it.”

Retail has remained a bright spot for the company, as sales at Kmart have remained relatively strong despite the bad publicity. In a statement, Kmart said it “looks forward to continuing our mutually beneficial and successful relationship” with the company.

Martha Stewart Living Omnimedia said, “After 26 months of uncertainty, we see this as an important step toward closure for MSO.”

Stewart’s attorney, Robert Morvillo, said she would appeal the sentence, which she may not begin serving until 2005. If it stands, Stewart will spend her five months at a prison in Danbury, Connecticut, followed by five months of confinement at her home in Bedford, New York.

During her home confinement, Stewart will be monitored by an electronic anklet and prohibited from using a cell phone, modem, or a phone with voicemail. She was ordered to pay a $30,000 fine.

Stewart’s voice broke as she pleaded for leniency in sentencing at the Gotham courthouse Friday morning, asking Judge Miriam Cedarbaum to consider the effect a prison sentence might have on the company and “the intense suffering I have endured almost every single moment for the last two years.”

After the sentencing, Stewart told supporters that her conviction was a “personal” matter that got “blown out of proportion.”

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