EXHIBIT 99.1
MARTHA STEWART LIVING OMNIMEDIA, INC.
ANNOUNCES FIRST QUARTER RESULTS
Business Segment Results Were in Line with Expectations; Higher Tax
Expense Increases Loss
Reports on Brand Strategy
New York, New York, May 7, 2004 --- Martha Stewart Living Omnimedia,
Inc. (NYSE: MSO) today announced its results for the first quarter of 2004.
Revenues for the first quarter of 2004 were $44.5 million, compared to $58.0
million in the prior year's quarter. Operating loss for the first quarter was
$(17.3) million, compared to an operating loss of $(7.5) million for the first
quarter of 2003. Operating income before depreciation and amortization ("OIDA")
for the first quarter of 2004 was a loss of $(15.6) million, compared to a loss
of $(5.4) million in the same period last year. Loss per share from continuing
operations was $(0.41) for the first quarter of 2004, compared to a loss per
share of $(0.09) in the 2003 quarter. Operating income and OIDA were both
generally in line with Company guidance. Higher income tax expense in the 2004
quarter contributed to the increased loss.
Sharon L. Patrick, President and Chief Executive Officer, said, "MSO's first
quarter operating results by business segment were generally in line with our
forecast, but our net loss for the quarter was greater than expected due to a
higher income tax expense.
"Since the March 5th verdict, we have been performing a comprehensive analysis
of all aspects of our business. The results of our analysis have been very much
as we predicted. Our consumers remain stalwart. Our research shows that magazine
subscribers, in particular, were unfazed by the verdict immediately afterwards
and remain so roughly six weeks later. These results also demonstrate how much
our subscribers value the key attributes associated with the name `Martha
Stewart' and how much progress we have made in evolving the brand from expert
personality to trusted brand attributes and brand labels.
"Based on our research findings, MSO has determined to accelerate this
evolution. The first steps in this process are editorial changes that, with
Martha's support and involvement, will be underway beginning in the June issue
of Martha Stewart Living magazine. Beginning with the September issue, while
retaining the name Martha Stewart, which connotes brand attributes of quality
expert information and a unique sense of style, we will place greater emphasis
on the name `Living' as the brand label.
"There will be additional evolutionary changes down the road as part of the
process - as always, rooted in our continuing research and focused on
maintaining our loyal audiences, providing the best support for our dedicated
retail partners, and meeting the needs of our advertisers.
"In addition, we are pleased to have concluded an agreement with Kmart
reaffirming our mass market partnership. With Kmart sales of Martha Stewart
Everyday products up 6.5% since the verdict in March, we are looking forward to
working with Kmart to raise the bar in new product categories. In our television
segment, we are evaluating future strategic actions beyond the current season.
"Overall, we are gratified by the support we continue to receive from our
consumers, partners, and employees. As we have said, with an adverse outcome in
Martha's personal legal situation, it will take longer for advertisers to return
to our print publications, but we continue to manage the company for the long
term. Our prudent use of our significant financial resources will enable us to
make those investments necessary to build our premier `how-to' brands,
emphasizing the distinctive attributes that will attract customers, partners,
and advertisers alike."
First Quarter 2004 Results By Segment
Publishing
Revenues in the quarter were $23.9 million, compared to $34.1 million in the
year-ago period. Operating income and OIDA were each a loss of $(4.6) million
for the quarter, compared to $5.0 million for each in the year-ago period. The
results reflect lower advertising and circulation revenue in the quarter from
Martha Stewart Living magazine, due in part to the rate base reduction effective
with the January 2004 issue, investment spending in Everyday Food, and a decline
in profitability of our Special Interest Publications. Everyday Food continues
to meet with positive consumer demand, and we expect to increase the rate base
to 750,000 from 500,000, effective with the July issue. The circulation of
Everyday Food for the first half of 2004 is expected to exceed our current rate
base, and all consumer metrics are positive relative to our internal plan.
Television
Revenues in the first quarter of 2004 were $4.2 million, compared to $6.6
million in the prior year's quarter. Operating income for the first quarter of
2004 was a loss of $(1.9) million, compared to $0.2 million in the first quarter
of 2003. OIDA was a loss of $(1.9) million for this year's first quarter,
compared to $0.6 million in the prior year's first quarter. The decline in
profitability was primarily due to the December 31, 2003, expiration of certain
cable licensing programs. The segment was also negatively impacted by the loss
of coverage, beginning in March, of our nationally syndicated daily show in
certain markets as a result of the outcome of Martha Stewart's trial.
Merchandising
Revenues in the first quarter of 2004 were $10.8 million, compared to $10.3
million in the prior year's quarter. The increase in revenue was primarily due
to the recognition of certain minimum royalty amounts from our partnership with
Kmart. Royalty revenue based on sales of our product at Kmart declined on a
year-over-year basis due in part to Kmart store closings that took place in the
early part of 2003. In addition, increased sales of Martha Stewart Signature
products and the launch of Martha Stewart Everyday at Sears Canada contributed
to increased revenues in the quarter. First quarter 2004 operating income was
$6.5 million, compared to $7.0 million in the first quarter of 2003. OIDA was
$6.7 million in the current period, compared to $7.2 million in the prior year's
quarter.
We recently reached an agreement with Kmart that better aligns the two
companies' mutual business interests. The amended agreement extends the Martha
Stewart Everyday partnership two years through early 2010, modifies certain
minimum royalty guarantee provisions and expands the scope to several new
product categories. This agreement allows both companies to move forward in a
mutually beneficial partnership for years to come.
Internet/Direct Commerce
Revenues in the Internet/Direct Commerce segment were $5.6 million, compared to
$7.0 million in the same period a year ago. The lower revenues in the quarter
were due to lower product sales and lower advertising revenues, partially offset
by higher revenue from our direct-to-consumer floral business, Marthasflowers.
The lower commerce revenue was principally due to lower catalog circulation.
Operating loss was $(2.7) million for the first quarter of 2004, compared to
$(8.3) million in the first quarter of 2003. OIDA was $(2.4) million in the 2004
quarter, compared to $(8.0) million in the year-ago period. The improved
operating results are primarily a result of more efficient catalog circulation,
which allowed us to improve overall response rates by eliminating unprofitable
prospecting circulation. The quarter also benefited from an improved product
gross margin and distribution efficiencies as well as the absence of
non-recurring costs incurred in the prior year's quarter related to the
restructuring of the segment.
Corporate Overhead
Corporate overhead, including depreciation and amortization, was $14.6 million,
compared to $11.5 million in the prior year's quarter. Corporate overhead,
before depreciation and amortization, was $13.4 million for the first quarter of
2004, compared to $10.2 million in the first quarter of 2003. The current
quarter includes $2.5 million of higher compensation-related costs, the majority
of which relate to a November 2003 stock option exchange program. The principal
component of the exchange program is the non-cash amortization of the value of
restricted stock units issued in exchange for employee stock options.
Depreciation and Amortization
Depreciation and amortization of $1.7 million in the first quarter of 2004
compares to $2.1million for the first quarter of 2003. The lower depreciation in
the current quarter was a result of lower depreciation of television studio
assets that were fully depreciated in 2003.
Income Taxes
During the first quarter of 2004, income tax expense was $3.1 million, compared
to a tax benefit of $2.8 million in the first quarter of 2003. The Company
provided a reserve of $9.3 million against certain deferred tax assets in the
first quarter of 2004 since the amount and extent of the Company's future
earnings are not determinable with a sufficient degree of probability.
Trends and Outlook
James Follo, Chief Financial and Administrative Officer, commented, "We are
conducting a comprehensive review of all of our operating assets. As part of
this process, we will evaluate the best options to reduce losses and optimize
our cost structure, where doing so will not harm the long-term prospects of the
business. Our financial resources remain significant with cash and short-term
securities of $170 million. Our outlook for the second quarter is for a loss of
approximately $0.35-$0.40 per share."
Basis of Presentation
The Company believes OIDA is an appropriate measure when evaluating the
operating performance of its business segments and the Company on a consolidated
basis. OIDA is used externally by the Company's investors, analysts, and
industry peers. OIDA is among the primary metrics used by management for
planning and forecasting of future periods, and is considered an important
indicator of the operational strength of the Company's businesses. The Company
believes the presentation of this measure is relevant and useful for investors
because it allows investors to view performance in a manner similar to the
method used by the Company's management and makes it easier to compare the
Company's results with other companies that have different capital structures or
tax rates. The Company believes OIDA should be considered in addition to, not as
a substitute for, operating income (loss), net income (loss), cash flows, and
other measures of financial performance prepared in accordance with generally
accepted accounting principles ("GAAP"). As OIDA is not a measure of performance
calculated in accordance with GAAP, this measure may not be comparable to
similarly titled measures employed by other companies. A reconciliation of OIDA
to operating income (loss) is provided in the financial statements included with
this release.
Martha Stewart Living Omnimedia, Inc. (MSO) is a leading provider of original
how-to information that turns dreamers into doers, inspiring and engaging
consumers with unique content and high-quality products for the home. MSO's
creative experts develop content within eight core areas - Home, Cooking and
Entertaining, Gardening, Crafts, Holiday, Keeping, Weddings, and Baby and Kids -
that provide consumers with ideas and products to celebrate their homes and the
domestic arts. MSO is organized into four business segments - Publishing,
Television, Merchandising and Internet/Direct Commerce.
The Company will host a conference call with analysts and investors at 11:00 am
ET that will be broadcast live over the Internet at www.marthastewart.com.
###
This press release contains certain "forward-looking statements," as that term
is defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts but instead represent only
our current beliefs regarding future events, many of which, by their nature, are
inherently uncertain and outside of our control. These statements can be
identified by terminology such as "may," "will," "should," "could," "expects,"
"intends," "plans," "anticipates," "believes," "estimates," "potential" or
"continue" or the negative of these terms or other comparable terminology. The
Company's actual results may differ materially from those projected in these
statements, and factors that could cause such differences include further
adverse reaction to the prolonged and continued negative publicity relating to
Martha Stewart by consumers, advertisers and business partners; further adverse
reaction by the Company's consumers, advertisers and business partners to the
outcome of Ms. Stewart's trial arising from a sale of non-Company stock by Ms.
Stewart; a loss of the services of Ms. Stewart; a loss of the services of other
key personnel; an adverse resolution to the SEC enforcement proceeding currently
underway against Ms. Stewart arising from her personal sale of non-Company
stock; adverse resolution of some or all of the Company's ongoing litigation;
downturns in national and/or local economies; shifts in our business strategies;
a softening of the domestic advertising market; changes in consumer reading,
purchasing and/or television viewing patterns; unanticipated increases in paper,
postage or printing costs; operational or financial problems at any of our
contractual business partners; the receptivity of consumers to our new product
introductions; and changes in government regulations affecting the Company's
industries. Certain of these and other factors are discussed in more detail in
the Company's filings with the Securities and Exchange Commission, especially
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations", which may be accessed through the SEC's World Wide
Web site at http://www.sec.gov. The Company is under no obligation to update any
forward-looking statements after the date of this release.
CONTACT: Investors - Howard Hochhauser, VP Finance and Investor Relations of
Martha Stewart Living Omnimedia, Inc., 212-827-8530; Media - Elizabeth Estroff,
AVP, Corporate Communications, of Martha Stewart Living Omnimedia, Inc.,
212-827-8281.
Martha Stewart Living Omnimedia, Inc.
Consolidated Statements of Operations
Three Months Ended March 31,
(in thousands, except per share amounts)
2004 2003 % change
--------------- --------------- ---------------
REVENUES
Publishing $ 23,910 $ 34,060 -29.8%
Television 4,177 6,615 -36.9%
Merchandising 10,789 10,328 4.5%
Internet/Direct Commerce 5,613 7,019 -20.0%
--------------- --------------- ---------------
Total revenues 44,489 58,022 -23.3%
--------------- --------------- ---------------
OPERATING COSTS AND EXPENSES
Production, distribution and editorial 28,966 35,625 -18.7%
Selling and promotion 14,250 12,821 11.1%
General and administrative 16,914 14,974 13.0%
Depreciation and amortization 1,674 2,141 -21.8%
--------------- --------------- ---------------
Total operating costs and expenses 61,804 65,561 -5.7%
--------------- --------------- ---------------
(17,315) (7,539) -129.7%
OPERATING LOSS
Interest income, net 362 402 -10.0%
--------------- --------------- ---------------
(16,953) (7,137) -137.5%
LOSS BEFORE INCOME TAXES
Income tax benefit (expense) (3,143) 2,849 nm
--------------- --------------- ---------------
(20,096) (4,288) -368.7%
LOSS FROM CONTINUING OPERATIONS BEFORE LOSS FROM DISCONTINUED
OPERATIONS
--------------- --------------- ---------------
Loss from discontinued operations, net of tax benefit in 2003 (161) (221) 27.1%
--------------- --------------- ---------------
NET LOSS $ (20,257) $ (4,509) -349.3%
=============== =============== ===============
LOSS PER SHARE - BASIC AND DILUTED
Loss from continuing operations $ (0.41) $ (0.09)
Loss from discontinued operations (0.00) (0.00)
--------------- ---------------
Net Loss $ (0.41) $ (0.09)
=============== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 49,464 49,450
Diluted 49,464 49,450
Martha Stewart Living Omnimedia, Inc.
Segment Information
Three Months Ended March 31,
(in thousands)
2004 2003 % change
--------------- --------------- ---------------
REVENUES
Publishing $ 23,910 $ 34,060 -29.8%
Television 4,177 6,615 -36.9%
Merchandising 10,789 10,328 4.5%
Internet/Direct Commerce 5,613 7,019 -20.0%
--------------- --------------- ---------------
Total revenues 44,489 58,022 -23.3%
--------------- --------------- ---------------
OPERATING INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION
Publishing (4,563) 5,013 nm
Television (1,890) 621 nm
Merchandising 6,679 7,203 -7.3%
Internet/Direct Commerce (2,436) (8,005) 69.6%
--------------- --------------- ---------------
Operating Income (Loss) before Depreciation and Amortization (2,210) 4,832 nm
before Corporate Overhead
Corporate Overhead (13,431) (10,230) -31.3%
--------------- --------------- ---------------
Operating Loss before Depreciation and Amortization (15,641) (5,398) -189.8%
Depreciation and amortization (1,674) (2,141) 21.8%
--------------- --------------- ---------------
OPERATING LOSS (17,315) (7,539) -129.7%
Interest income, net 362 402 -10.0%
--------------- --------------- ---------------
LOSS BEFORE INCOME TAXES (16,953) (7,137) -137.5%
Income tax benefit (expense) (3,143) 2,849 nm
--------------- --------------- ---------------
LOSS FROM CONTINUING OPERATIONS BEFORE LOSS FROM DISCONTINUED
OPERATIONS (20,096) (4,288) -368.7%
--------------- --------------- ---------------
Loss from discontinued operations, net of tax benefit in 2003 (161) (221) 27.1%
--------------- --------------- ---------------
NET LOSS $ (20,257) $ (4,509) -349.3%
=============== =============== ===============
Martha Stewart Living Omnimedia, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)
March 31, December 31,
2004 2003
---------------- ------------------
ASSETS (unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 166,701 $ 165,566
Short-term investments 3,100 3,100
Accounts receivable, net 20,002 39,758
Inventories, net 8,769 7,485
Deferred television production costs 2,976 3,465
Income taxes receivable 5,658 5,658
Deferred income taxes, net 1,881 5,024
Other current assets 3,197 4,422
---------------- ------------------
Total current assets 212,284 234,478
---------------- ------------------
21,297 22,673
PROPERTY, PLANT, AND EQUIPMENT, net
---------------- ------------------
INTANGIBLE ASSETS, net 44,257 44,257
---------------- ------------------
DEFERRED INCOME TAXES 3,224 3,224
---------------- ------------------
OTHER NONCURRENT ASSETS 4,455 4,470
---------------- ------------------
Total assets $ 285,517 $ 309,102
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 23,810 $ 26,628
Accrued payroll and related costs 6,760 10,360
Income taxes payable 469 167
Current portion of deferred subscription income 24,728 23,833
---------------- ------------------
Total current liabilities 55,767 60,988
---------------- ------------------
DEFERRED SUBSCRIPTION INCOME 7,385 7,133
OTHER NONCURRENT LIABILITIES 4,308 4,316
---------------- ------------------
Total liabilities 67,460 72,437
---------------- ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Class A common stock, $0.01 par value, 350,000 shares authorized:
19,775 and 19,628 shares issued in 2004 and 2003, respectively 198 196
Class B common stock, $0.01 par value, 150,000 shares authorized:
29,909 and 30,059 shares outstanding in 2004 and 2003, respectively 299 301
Capital in excess of par value 185,261 183,744
Unamortized restricted stock (175) (307)
Retained earnings 33,249 53,506
---------------- ------------------
218,832 237,440
Less class A treasury stock - 59 shares at cost (775) (775)
---------------- ------------------
Total shareholders' equity 218,057 236,665
--------------- -----------------
Total liabilities and shareholders' equity $ 285,517 $ 309,102
=============== =================
Martha Stewart Living Omnimedia, Inc.
Supplemental Disclosures Regarding Non- GAAP Financial Information
Three Months Ended March 31,
(in thousands)
The following table presents segment and consolidated financial
information, including a reconciliation of operating income, a GAAP measure, and
Operating Income before Depreciation and Amortization (OIDA), a non-GAAP
measure. In order to reconcile OIDA to operating income, depreciation and
amortization are added back to operating income.
2004 2003 % change
------------------- ------------------- --------------------
REVENUES
Publishing $ 23,910 $ 34,060 -29.8%
Television 4,177 6,615 -36.9%
Merchandising 10,789 10,328 4.5%
Internet/Direct Commerce 5,613 7,019 -20.0%
------------------- ------------------- --------------------
Total Revenues 44,489 58,022 -23.3%
=================== =================== ====================
OPERATING INCOME (LOSS)
Publishing (4,625) 4,972 nm
Television (1,947) 227 nm
Merchandising 6,489 7,035 -7.8%
Internet/ Direct Commerce (2,679) (8,252) 67.5%
------------------- ------------------- --------------------
Operating Income (Loss) before Corporate (2,762) 3,982 nm
Overhead
Corporate Overhead (14,553) (11,521) -26.3%
------------------- ------------------- --------------------
Total Operating Loss (17,315) (7,539) -129.7%
=================== =================== ====================
DEPRECIATION AND AMORTIZATION
Publishing 62 41 51.2%
Television 57 394 -85.5%
Merchandising 190 168 13.1%
Internet/ Direct Commerce 243 247 -1.6%
Corporate Overhead 1,122 1,291 -13.1%
------------------- ------------------- --------------------
Total Depreciation and Amortization 1,674 2,141 -21.8%
=================== =================== ====================
OPERATING INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION
Publishing (4,563) 5,013 nm
Television (1,890) 621 nm
Merchandising 6,679 7,203 -7.3%
Internet/ Direct Commerce (2,436) (8,005) 69.6%
------------------- ------------------- --------------------
Operating Income (Loss) before Depreciation (2,210) 4,832 nm
and Amortization and before Corporate
Overhead
Corporate Overhead (13,431) (10,230) -31.3%
------------------- ------------------- --------------------
Operating Loss Before $(15,641) $ (5,398) -189.8%
Depreciation and Amortization
=================== =================== ====================