Shares rise despite legal flak
Shares of Martha Stewart Omnimedia edged higher Friday in spite of a down market — rising nearly 5% to $13.39 — capping an oddly upbeat week for the stock as the harried homemaker’s trial moved into the final stages of jury selection. Opening arguments are expected to start sometime this week.
The stock move seems to reflect expectations that the domestic diva will be acquitted or, at least, serve no jail time, and that shares will rise further when that verdict is announced. But some on Wall Street warn that the company may well have been mortally wounded by two years of negative headlines, increased competition and, perhaps, a natural tapering off of the Stewart phenomenon.
Analyst Dennis McAlpine of McAlpine Associates noted that ad pages at flagship magazine Martha Stewart Living continue to dip, falling 37% for the February issue. Circulation was down last year, with newsstand sales off 18% in the first half. (Competitor Real Simple, for instance, saw a sharp uptick in ad pages last year.)
And TV ratings for syndicated show “Martha Stewart Living” are dipping.
“We contend that … her remarkable run with both consumers and advertisers has come to an end,” McAlpine said.
“Given the scenario we are talking about, i.e., declining magazine profits, no TV (growth) and steady (merchandise) sales, the company could last several years while it searches for a way out of the current bind,” he said. He speculated that Stewart could take the company private again by buying outstanding shares for about $15 each — for a total of about $82 million. But that’s unlikely to happen until after a trial is over and the stock price settles down.
Stewart’s troubles stem from her sale of shares in biotech company ImClone in late December 2001. She’s accused of obstructing a federal probe into whether she sold the stock based on inside information. But she has not actually been charged with insider trading — a fact that’s fueled a belief she’ll be acquitted. It can be hard for prosecutors to convict on peripheral accusations when they can’t prove the underlying accusation.