EXHIBIT 99.1
FOR IMMEDIATE RELEASE
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MSO Q1 2003 EARNINGS CONFERENCE CALL - 4/30/03 11:00 AM ET
FINAL TRANSCRIPT
CORPORATE PARTICIPANTS
MARTHA STEWART
Martha Stewart Living Omnimedia - Chairman of the Board of Directors & Chief
Executive Officer
SHARON PATRICK
Martha Stewart Living Omnimedia - President & Chief Operating Officer
JAMES FOLLO
Martha Stewart Living Omnimedia - Executive Vice President, Chief Financial
Officer
CONFERENCE CALL PARTICIPANTS
ALISSA GOLDWASSER
William Blair & Company - Analyst
KEVIN GRUNEICH
Bear, Stearns & Company - Analyst
MANDANA HORMOZI
Lazard Freres & Company - Analyst
DOUGLAS ARTHUR
Morgan Stanley - Analyst
LAURA RICHARDSON
Adams Harkness & Hill - Analyst
DAVID ROCKER
Rocker Partners
PRESENTATION
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OPERATOR
GOOD MORNING AND WELCOME TO THE MARTHA STEWART LIVING OMNIMEDIA FIRST
QUARTER 2003 EARNINGS CONFERENCE CALL AND WEB CAST. ALL PARTICIPANTS WILL
BE IN LISTEN ONLY MODE UNTIL THE QUESTION AND ANSWER SESSION OF THE CALL.
AT THE REQUEST OF MARTHA STEWART LIVING OMNIMEDIA, THIS CALL IS BEING
RECORDED. ANYONE WITH OBJECTION SHOULD DISCONNECT AT THIS TIME. AT THIS
TIME, IT IS MY PLEASURE TO INTRODUCE MR. JAMES FOLLO, EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER OF MARTHA STEWART LIVING OMNIMEDIA.
SIR, YOU MAY BEGIN WHEN READY.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Thank you. Good morning, and we thank you for attending Martha Stewart
Living Omnimedia's first quarter 2003 earnings teleconference and web cast.
With me today are Martha Stewart, Chairman and Chief Executive Officer, and
Sharon Patrick, our President and Chief Operating Officer. Both will join
the call for the question and answer portion of the call. Martha will open
today with brief remarks and I will conclude the formal presentation with a
financial review of the first quarter and discuss the outlook for the
second quarter of 2003. Before handing the conference over to Martha, I
would like to remind you that our discussion may include forward-looking
statements which can generally be identified by the use of terminology such
as "will" and "expect". Our actual results may differ materially from those
projected in the statements. And factors that could cause such differences
are discussed in our filings with the Securities and Exchange Commission,
particularly in the Management Discussion and Analysis sections of our
periodic filings and in our earnings release issued this morning. An
archived version of this teleconference and web cast will be available at
www.marthastewart.com through May 7th, 2003. I would like to now turn the
call over to Martha.
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MARTHA STEWART - MARTHA STEWART LIVING OMNIMEDIA - CHAIRMAN OF THE BOARD OF
DIRECTORS & CHIEF EXECUTIVE OFFICER
Thank you, Jim. Good morning, everyone, and thank you for attending Martha
Stewart Living Omnimedia's first quarter 2003 earnings teleconference and
web cast. Since we hosted last quarter's call less than two months ago, I
will keep my prepared remarks brief and let Jim focus on the financial
results for the quarter and the outlook for the second quarter of 2003.
Sharon Patrick and I will return for the question and answer period
following that.
During our last earnings teleconference this past March, I expressed that I
was increasingly hopeful that my personal legal situation regarding the
ongoing governmental investigation of my sale of non-Company stock would be
resolved in the near future. Obviously that has not happened and I can make
no predictions as to when it will. It continues to remain inappropriate for
me to discuss anything further relating to the investigation on this call
today.
While our business results for the quarter reflect considerable pressure
associated with the continuing investigations, we have not wavered in our
commitment to creating and producing the highest quality original how-to
content and preserving the products that define our brand.
Martha Stewart Living Omnimedia remains a laboratory for creative thought
and a place where ideas are generated into inspiration for the home and for
the homemaker. MSO continues to provide consumers with superb publications,
programs and products and to pioneer new ones like Everyday Food and our
Martha Stewart Signature furniture with Bernhardt. Both of these new
programs have met early customer appreciation and I look forward to
updating you on our successes on our second quarter call.
Let me close by saying that we continue to carefully manage the business
during this period of uncertainty, while investing carefully in attractive
growth opportunities. Once the investigations are resolved, we will be in a
better position to assess the appropriate steps necessary to achieve
improved financial results. With that, I would like to turn the call over
to Jim for a financial review of the quarter and update on the outlook for
the second quarter. Jim...
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Thank you, Martha. Let me begin by saying throughout my presentation today
I will regularly refer to EBITDA, which is a non-GAAP financial measure.
EBITDA, as used by the company, represents operating income or loss
excluding depreciation and amortization. Additionally, information relating
to some of the EBITDA measures discussed on this call is contained in our
press release issued this morning, which is accessible on our website
www.marthastewart.com, under the heading Investor Relations.
Overall company revenues for the first quarter of 2003 were $58 million,
compared to $68 million in the first quarter of 2002. Loss from operations
in the quarter was $7.5 million, compared to income from operations of $5.8
million in the prior year's quarter and EBITDA loss for the quarter was
$5.4 million, compared to $8.8 million in the prior year's quarter. Loss
from continuing operations was 9 cents per share in the quarter compared to
income per share of 8 cents in the 2002 quarter. The prior year's quarter
includes a cumulative effect of an accounting change resulting from the
adoption of FAS 142 that resulted in the reduction of the carrying value of
the company's goodwill of $5 million or $3.1 million after tax or 6 cents
per share. We finished the quarter with a strong balance sheet. Our cash
and short-term investments was $166.5 million as of March 31st, 2003 or
approximately $3.36 per share, and we continue to be debt free. Our capital
expenditures in the quarter were approximately $300,000 and we don't expect
to be making any significant capital expenditures for the foreseeable
future.
Now turning to publishing.
Publishing segment revenues for the quarter were $34.1 million, compared to
$43.1 million in the prior year's quarter. The quarter results reflect
three issues of Martha Stewart Living magazine, one issue of Martha Stewart
Baby and Martha Stewart Kids. The quarter also included two issues of
Everyday Food. Accordingly, for comparison with the 2002 quarter, in the
current year's quarter we published one additional special issue, which is
Martha Stewart Baby in addition to the two issues of Everyday Food.
Revenues in the quarter reflect the following -- advertising pages in
Martha Stewart Living magazine decreased approximately 28% in the quarter
to 328 pages according to MIN. Circulation revenues were lower in the
quarter due to lower newsstand and subscription revenues from the Martha
Stewart Living magazine. The lower subscription revenue resulted from the
acquisition of less profitable circulation orders due to lower response
from previous subscription acquisition efforts. Revenue associated with
special issues was lower in the quarter due primarily to lower advertising
revenue. The prior year's Martha Stewart Baby issue was single-sponsored
whereas special issues in the current year's quarter had multiple
advertisers. In the prior year, the special issue was profitable whereas
the current year's quarter special issues were unprofitable. Everyday Food
revenue in the quarter was approximately $4.5 million and was modestly
profitable. On the cost side, the quarter reflected higher expenses
associated with the Everyday Food magazine and increased production costs
associated with the increased frequency of special issues, offset by lower
costs resulting from lower book size of Martha Stewart Living magazine
primarily due to lower advertising pages. The Company also benefited from
lower paper prices during the quarter. EBITDA for the quarter was $5
million compared to EBITDA of $15.3 million in the 2002 quarter. We
continue to publish test issues of Everyday Food magazine. We will publish
a total of four test issues of the magazine before making a decision in
early June about a launch. Newsstand sales of the initial issue of Everyday
Food have exceeded our expectation as have subscription acquisition efforts
to date. Advertising support has been strong and continues to exhibit
strength through the July/August issue, which is the final test issue.
In television, revenues in the quarter were $6.6 million compared to $6.7
million in the 2002 quarter. The revenue decline is due primarily to lower
revenues from the syndicated program due to lower ratings and the loss of
air time on CBS's The Early Show. These declines were partially offset on
higher revenues from cable television programming. Distribution in the
quarter exceeded90% and household ratings in the quarter were 1.33. On the
cost side, expenses were slightly higher with increased marketing expenses
for the syndicated program being partially offset by lower production costs
in the quarter. EBITDA was $600,000 in the quarter compared to $800,000 in
the prior year's quarter.
In merchandising, revenues were $10.3 million compared to $11.1 million in
the prior year's quarter. The decrease in revenue for the first quarter of
2003 resulted primarily from lower product sales of Martha Stewart Everyday
products at Kmart as a result of store closings as well as lower
same-store-sales. During the quarter, Kmart announced the closing of
approximately 300 stores in addition to the 300 stores closed in March
2002. The company has recognized Kmart royalty revenues in the quarter
based upon actual sales of products, not contractual minimum levels. Such
annual contractual minimums are payable in early 2004 to the extent that
actual royalties earned does not meet certain levels. We currently expect
royalties paid in 2003 based upon products sales will be below the
contractual minimum amounts. The company currently expects that it will
record the difference between actual payments and the minimum amount in the
fourth quarter 2003, when the amount is determinable. Revenues from Martha
Stewart Signature increased during the quarter from primarily due to
revenues from initial sales of furniture, during the load-in, in
anticipation of the official launch, which occurred this month. EBITDA for
the quarter was $7.2 million compared to $7.6 million in the prior year's
quarter resulting from the revenue decline, partially offset by lower costs
in the segment during the quarter.
Internet/Direct Commerce revenues in the quarter were $7.0 million compared
to $7.1 million in the prior year's quarter. The decline in the quarter
reflects lower advertising revenues partially offset by higher commerce
sales principally resulting from higher catalog circulation, which
increased in the quarter. Costs in the quarter included non-recurring
severance and consulting fees related to the re-organization of the segment
that we announced on last quarter's earnings call. These costs aggregated
approximately $1.2 million in the quarter. Excluding the costs related to
the re-organization, expenses increased modestly due to the increased
catalog circulation. EBITDA loss increased to $8.0 million from $6.7
million in the prior year's quarter.
We have made significant progress over the past several months since we
announced the re-organization of the segment. Certain achievements to date
include:
o reduced headcount in the segment
o negotiated technology contract savings that reduce monthly
technology costs by approximately 40%
o We implemented a new zone-shipping program to significantly
reduce mail costs, and
o We formalized circulation and marketing plans that will yield a
more focused merchandise and marketing plan that we expect to
increase conversion and response rates and simplify business
processes.
We have also implemented a series of strict operating metrics that will
ensure that we remain on our plan for significant reduction of losses in
the segment.
Our corporate expenses in the quarter were $10.2 million, an increase of
$2.2 million from $8.0 million in the prior year's quarter. The increase
resulted primarily from higher legal expenses and insurance costs.
Depreciation and amortization declined in the quarter, primarily as a
result of a write-off taken in the fourth quarter of 2002 of certain
website development costs resulting from the re-organization of the
Internet/Direct Commerce division.
I would now like to conclude with a discussion of the outlook for the
second quarter of 2003. We are currently forecasting a loss from continuing
operations of approximately 3 to 5 cents per share. Consolidated revenues
are expected to decline approximately 20%. EBITDA loss for the quarter is
expected to be at approximately break-even to a loss of approximately $2
million, with depreciation and amortization estimated at $2.1 million, for
an operating loss for the quarter of approximately $2 million to $4
million.
Key factors contributing to the quarterly results within each segment are
as follows:
o Publishing revenues are expected to decline approximately 20%,
while EBITDA and operating income are expected to decrease
approximately 60% year-over-year. Depreciation and amortization
in the segment will remain constant with the prior year's
amounts. These decreases in revenues EBITDA and operating income
are primarily due to the following:
- Lower advertising pages in Martha Stewart Living magazine.
Advertising pages are expected to decline approximately 30%
in the quarter.
- Lower subscription revenues will be due to less profitable
subscription acquisition efforts.
- We expect lower newsstand revenues of Martha Stewart Living
magazine.
- In the second quarter we will publish in addition to three
issues of Martha Stewart Living, two issues of Martha
Stewart Weddings, two Everyday Food issues, and two special
issues.
o Television revenue will be approximately $6.5 million to $7.0
million, while EBITDA will be approximately break even.
Depreciation and amortization in the segment will be
approximately $4.0 million and the loss from operations in this
segment will be approximately $4.0 million.
o Merchandising revenues in the quarter are expected to decrease by
30% reflecting recent sales trends and store closings at Kmart.
EBITDA and operating income will decrease by approximately 40%
reflecting higher Signature marketing expenses in the quarter.
Depreciation and amortization is approximately $0.2 million in
the quarter. We will continue to recognize royalty revenues under
our contract with Kmart based upon actual sales of our products.
o Internet/Direct Commerce revenues will approximate $6.0 million
to $6.5 million for the quarter, reflecting lower advertising
revenues and lower commerce sales.
EBITDA loss for the quarter will be approximately $5.0 million reflecting
the benefits of our restructuring efforts, resulting in reduced head count
costs, increased gross margins, lower fulfillment costs and lower
technology-related costs. Depreciation and amortization in the quarter will
be approximately $300,000, and, therefore, operating loss in the segment
will approximate $5.3 million in the quarter. Corporate expenses will
approximate $10 million and depreciation will remain at first quarter
levels, which were approximately $2.1 million.
This concludes the formal portion of our presentation. I would like to turn
the call over to the conference call operator for the question and answer
portion of the session. I would request that you limit your questions to no
more than two in order for there to be sufficient time to answer questions
from as many participants as possible.
QUESTION AND ANSWER
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OPERATOR
Thank you, Mr. Follo. At this time, we are ready to begin the question and
answer session. Anyone wishing to ask a question please press star then the
number one on your telephone keypad now. To withdraw your question, please
press star then the number two. Please hold for your first question. First
question comes from Alissa Goldwasser of William Blair & Company.
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ALISSA GOLDWASSER - WILLIAM BLAIR & COMPANY - ANALYST
Hi, good morning. Is there any way you can talk about your decision to
recognize the merchandising revenue based on actual sales rather than the
minimum guarantee? And if you could, tell us how much higher the minimum
guarantee was in the first quarter?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
As you know, the minimum guarantee is calculated really at the end of Kmart
fiscal year, and which is January 31st. At that point we'll be in a better
position to calculate the actual amount. We thought it was more appropriate
accounting to book that revenue in the fourth quarter. That being said,
we've said in the past that we expect the revenues in that segment to grow
at the minimum levels, double digits. And that still remains true on an
annual basis, but on a quarterly basis that will not be reflected.
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ALISSA GOLDWASSER - WILLIAM BLAIR & COMPANY - ANALYST
I was wondering if you could talk a little bit about the year-over-year
decline in deferred subscription income? I'm curious if you could break out
or generally talk about how much of that decline is units versus pricing?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Well, we continue to maintain our rate base of 2.4 million copies. It's
substantially all pricing as I mentioned earlier in my speech. That number
is really driven by less profitable subscription acquisition efforts.
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ALISSA GOLDWASSER - WILLIAM BLAIR & COMPANY - ANALYST
Great. Thank you.
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OPERATOR
The next question comes from Kevin Gruneich of Bear Stearns & Company.
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KEVIN GRUNEICH - BEAR, STEARNS & COMPANY - ANALYST
Thank you, I was wondering Jim if you could break out the advertising
revenue comparison and the circulation revenue comparison for Martha
Stewart Living magazine?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
You're asking what percentage of the decline in revenues was advertising
versus subscription, is that the question?
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KEVIN GRUNEICH - BEAR, STEARNS & COMPANY - ANALYST
What was the decline in ad revenues and circulation revenues for MSL in Q1
year-over-year?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
The advertising revenue decline was in the neighborhood of about 35% and
the circulation revenue decline was in the neighborhood of about 20%.
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KEVIN GRUNEICH - BEAR, STEARNS & COMPANY - ANALYST
Circulation revenues down 20?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
That's right.
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KEVIN GRUNEICH - BEAR, STEARNS & COMPANY - ANALYST
Okay. Secondly, I was wondering if you could isolate the extent of the
professional and legal fees tied to the trading controversy in Q1? You
mentioned that was one item, insurance was another.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
The number in the first quarter was about $1.2 million related to that
issue.
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KEVIN GRUNEICH - BEAR, STEARNS & COMPANY - ANALYST
Thank you.
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OPERATOR
Your next question comes from Mandana Hormozi of Lazard Freres.
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MANDANA HORMOZI - LAZARD FRERES & COMPANY - ANALYST
Good morning, I was wondering whether there was any balance sheet impact
from this - sort of deferral of the recognition between the difference of
the merchandising product sales and minimum guarantees, whether there's any
way to track that on the balance sheet or not? Also along that line, any
impact on sort of product sales or availability from the SARS issue in
Asia?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
As far as the impact on our balance sheet related to the minimum
guarantees, had we booked any sort of spread, we would have treated that as
a receivable to be paid in early 2004. To the extent we haven't booked it,
there was no balance sheet impact. As far as any noticeable impact in our
business related to the SARS matter, we have not seen that, although
international sales is a relatively small percentage of our overall
merchandise sales.
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MANDANA HORMOZI - LAZARD FRERES & COMPANY - ANALYST
If I could follow up with one quick question. Is there any change in
strategy going into the up-fronts with regards to advertising sales, maybe
waiting for scatter until the issues are solved and maybe pricing is a
little firmer?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
We're not expecting any radical difference, but we'll wait and see how this
thing shapes up before we make a commitment as to what percentage of
inventory will be sold in the upfront versus the scatter. We are not firmly
committed to that.
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MANDANA HORMOZI - LAZARD FRERES & COMPANY - ANALYST
Thank you.
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OPERATOR
Your next question comes from Douglas Arthur from Morgan Stanley.
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DOUGLAS ARTHUR - MORGAN STANLEY - ANALYST
Yeah, I'm wondering if you can give any kind of guidance for the year on
the Internet/Direct Commerce loss? Obviously you're aggressively trying to
restructure that. Secondly, cash fell in the quarter, is that seasonal or
what was the primary reason for that? And then going back to
Internet/Direct Commerce, a mix between ad revenues and commerce in that
sector in the quarter would be helpful. Thanks.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Okay. The ad revenue in the segment for Internet/Direct Commerce was
essentially about $500,000. The cash decline, we pay year-end bonuses
post-December 31st. The decline in our cash balance, which I believe is
approximately $12 million, reflects year-end cash bonuses. Inventory
purchases that take place in the fourth quarter, particularly in the
Internet/Direct Commerce business, generally gets paid in the first quarter
of the year. You see that reflected in a lower accounts payable and accrued
liabilities. Was there a third question?
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DOUGLAS ARTHUR - MORGAN STANLEY - ANALYST
Any sense for --
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Year-end loss?
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DOUGLAS ARTHUR - MORGAN STANLEY - ANALYST
You're trying to restructure Internet/Direct Commerce. It's been a source
of a lot of drain. Any ballpark guesstimate on what the operating profit or
loss could look like there for the year?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
I think somewhere in the neighborhood of around $18 million or $20 million
is something you ought to be looking at now. That is a long lead-time
business, as I've said before. Our restructuring plans were announced and
put in place in March, the impact of that restructuring really won't start
bearing fruit until the second quarter -- I'm sorry , the third and fourth
quarter of this year. Accordingly, the losses will not be coming in quite
as dramatically as some would hope, including us.
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DOUGLAS ARTHUR - MORGAN STANLEY - ANALYST
Jim, this is probably a question you can't answer, but if this uncertainty
lingers for a lot longer, are you going to remain on the sidelines in terms
of buying back stock here?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
I think it's likely that we will remain on the sidelines until we have
resolution with anything with respect to our shares, yes.
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DOUGLAS ARTHUR - MORGAN STANLEY - ANALYST
Thank you.
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OPERATOR
Your next question comes from Laura Richardson of Adams Harkness & Hill.
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LAURA RICHARDSON - ADAMS HARKNESS & HILL - ANALYST
Thanks. My two questions, the first one is about Kmart. I just want to make
sure, Jim, I heard you clearly that the revenue decline is a function of
store closings and also some same-store declines?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
That's correct.
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LAURA RICHARDSON - ADAMS HARKNESS & HILL - ANALYST
Can you elaborate on that at all? Categories that are doing better or worse
or --
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
I'm going to let Sharon kind of talk about some of the details about our
sales trends. Let me just expand on -- just clarify and expand on the store
closing issue. Kmart closed stores last year, while they announced it in
March it wasn't any trend -- noticeable impact on our trends, because of
the sale effort in those stores took place in the second quarter. We're
comparing ourselves against year-over-year higher store count. Again Kmart
then announced this year an additional 300 stores in January. So there was
an impact on that as well. Both of those events have caused trends on a
total store basis to be negative. Sharon, do you want to just maybe talk a
little bit about the trends within each category?
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SHARON PATRICK - MARTHA STEWART LIVING OMNIMEDIA - PRESIDENT & CHIEF
OPERATING OFFICER
I will. Hi, Laura. We were affected in first quarter by a number of factors
that made this year somewhat different from last. First of all, garden as
you know, last year we very much benefited by a very spring-like condition
throughout the quarter. This year, weather-related issues have very much
affected the sale of garden products, which is just only beginning to start
up. In addition, there were certain issues related to the dock strike that
slowed down some of the inventory receipt. The spring reset that went off
the first of last year in January was moved by Kmart to May this year. So
home domestics was affected by that move and again is just beginning to
start that climb up. Again, as a result of the product changes, there were
lower levels of advertising for the products. All this conspired to produce
these results.
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LAURA RICHARDSON - ADAMS HARKNESS & HILL - ANALYST
Okay. Thanks. That helps.
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SHARON PATRICK - MARTHA STEWART LIVING OMNIMEDIA - PRESIDENT & CHIEF
OPERATING OFFICER
You're welcome.
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LAURA RICHARDSON - ADAMS HARKNESS & HILL - ANALYST
Anyone who wants to answer this, feel free to chime in, when you read the
press release, it sounds like the Martha personal stock situation is, you
know, the only drag on the business. If you had to list and rank Kmart as a
factor and the challenges in the Internet/Direct business and the economy
and maybe the maturation of your show and your magazine, anything else you
want to throw in there, how would you rank those things relatively in terms
of what's impacting you the most?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
I think that's a tough question to really answer and break out. I think
that's a bit of a broad question.
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LAURA RICHARDSON - ADAMS HARKNESS & HILL - ANALYST
Yeah.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
It's clearly a function of several different things, all of which are hard
to quantify.
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LAURA RICHARDSON - ADAMS HARKNESS & HILL - ANALYST
That's why I didn't ask for specific percents. But would you agree it's not
- -- it's not just, you know, the lingering investigation but there are other
challenges? External to the Company and internal to the Company?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
You know, there continues to be things that work for us as Everyday Food
and our furniture program and there are things that don't work and we take
action every day on those sorts of things. It's hard to isolate any one
particular area.
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SHARON PATRICK - MARTHA STEWART LIVING OMNIMEDIA - PRESIDENT & CHIEF
OPERATING OFFICER
Well, this is Sharon, I would say the single biggest factor that's affected
our performance is the lingering lack of resolution of the Martha situation
that impacts every aspect of our business.
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LAURA RICHARDSON - ADAMS HARKNESS & HILL - ANALYST
Yeah. Okay.
Thanks. We're all getting sick of it dragging on. Hopefully some day it
will be resolved.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Before we take the next question, somebody has just asked me to clarify a
remark I made regarding television guidance. Let me just restate what the
television guidance will be for the second quarter. The television revenue
guidance for the second quarter is $6.5 to $7 million, EBITDA will
approximately be break even, depreciation and amortization will be $400,000
and the loss from operations will be about $400,000 for the quarter. Thank
you.
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OPERATOR
Your final question comes from David Rocker of Rocker Partners.
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DAVID ROCKER - ROCKER PARTNERS
Thanks very much. Could you -- the question was asked, I'm not sure it was
answered. The Kmart disparity between what you're actually selling and what
you're entitled to will in fact be paid. So you know at least what you
would have been entitled to. Could you clarify how many dollars that is?
And secondly, -- well one at a time. Go ahead.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
In the first quarter, I would estimate that number - the gap - to be
somewhere in the 2 cent range.
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DAVID ROCKER - ROCKER PARTNERS
2 cent range.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
It is not fully extrapolable in the year.
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DAVID ROCKER - ROCKER PARTNERS
The second is, I noticed you were more aggressive in paying down payables
from last year. Last year, total current liabilities went down $7 million,
this year they went down $17 million , which obviously had an impact on
cash. Why more aggressive at this time, doing so?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
I'm not sure that was really a conscious effort other than in certain cases
it could simply be timing of payments. There was nothing that was
consciously made to pay down our payables in any way quicker.
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DAVID ROCKER - ROCKER PARTNERS
The final thing, the overheads were about $2 million higher than last year.
And of that the Martha Stewart legal issues attributed I think you said
$1.2 million.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
That's right.
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DAVID ROCKER - ROCKER PARTNERS
I guess the question is, what are you doing -- what are the other aspects
of it? Do you have plans to reduce that consistent with the reduced size of
the operation?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
The only other factor that really contributed was our D & O insurance,
which is a phenomenon which was renewed the beginning of the fourth quarter
last year, contributed a difference of about $800,000 in the quarter.
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DAVID ROCKER - ROCKER PARTNERS
The entirety of the $2 million in essence was related to matters that were
probably related to the personal sale?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Well, if you say the D & O is but I think that's certainly an industry wide
phenomenon not related, but nevertheless, those were the two elements.
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DAVID ROCKER - ROCKER PARTNERS
All right. That would still leave the other factors with flat expenses.
Relative to the prior year on the smaller scale operation. What are the
opportunities to scale the fixed costs lower?
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
We continue to take a careful look at expenses and wherever we can, you
know, we're certainly trying to take steps to reduce those as our revenues
are pressured until the situation resolves , I would not expect us to take
significant steps either way. Throughout the company in that area.
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DAVID ROCKER - ROCKER PARTNERS
We're all eager to get this behind us.
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JAMES FOLLO - MARTHA STEWART LIVING OMNIMEDIA - EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
We are.
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DAVID ROCKER - ROCKER PARTNERS
Okay. Thank you.
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OPERATOR
Ladies and gentlemen, this concludes today's Martha Stewart Living
Omnimedia first quarter 2003 earnings conference call and web cast. You may
now disconnect.