Category Archives: Financials

Martha Proclaims “New Chapter” for MSLO

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It’s easy to see a shift is underway at MSLO. After declining ad revenues throughout the publishing industry, as advertiser dollars migrate online, MSLO shed the production portions of its publication divisions, while continuing to contribute content development for the popular books and magazines. This is part of the company’s strategy to cut costs at MSLO while expanding its profitable merchandising division, which has been responsible for almost all the company’s profits for several years now.

In this Bloomberg article, Martha is optimistic about her company’s future and her ability to leverage her personal brand to be ambassador of “good things” to homemakers all over the world. Martha has worked hard to earn the public’s trust–so there’s little doubt she’ll succeed.

She also provides very good advice on gift giving for executives, including this one: “What they want is a beautiful piece of jewelry, a handbag — something you’ve thought through. That’s something you don’t mess up.”

Lastly, doesn’t Martha look buoyant and fabulous in the photo? Happy New Year, Martha!

You can read the entire Bloomberg article here.

This is excerpted from the article, as is the photo shown above:

Now I’m more devoted to making things really, really good than making things monetarily successful. If you make them good, the success comes. My company is a case in point. This company has to grow now. It has to. It has every single quality of a really good company and now all I have to do is help make that happen.

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JC Penney Scales Back Partnership with Martha

What a difference a CEO makes!

Ron Johnson, former CEO of JC Penney who initiated the partnership with MSLO, was counting on Martha to be the centerpiece of JC Penney’s reimagined housewares department. As the retailer struggled under his leadership, he was replaced by the current CEO, Mike Ullman. Unfortunately, Ullman either doesn’t share Johnson’s faith in the Martha brand, or he thinks that the national retailer should be focused elsewhere–or both. The expensive lawsuit that JC Penney’s has been fighting with Macys in a NYC courtroom is  almost certainly influencing his decision, as well

So, he has decided to scale back significantly JC Penney’s partnership with Martha. Here’s what’s changing:

– JC Penney’s will discontinue selling products in those categories that prompted the lawsuit from Macys.

– JC Penney’s will sell back its share  ($37 million worth!) of MSLO stock purchased as part of the partnership.

– JC Penney’s will no longer have representation on the MSLO Board of Directors

Not great news for Martha and MSLO, where a great portion of revenue is generated by licensing the “Martha Stewart” name. Martha was hopeful that the products offered at JC Penney’s would reach audiences currently unserved by the products sold at Macy’s.

Still, the JC Penney’s partnership will continue, though CEO Ullman seems less devoted to Martha and her products. And the partnership with Macy’s will continue, though Macy’s CEO Terry Lundgren became furious with Martha when she told him of her new relationship with JC Penney’s. Of course, neither CEO would be interested in continuing his partnership with Martha if she and her products were not so popular with the public.

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Martha vs. Macy’s: Judge Schedules Sept. 25 Hearing on Report Penney’s Will Drop Contested Items

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The judge in the Martha vs. Macy’s trial has scheduled a hearing for September 25, though he did not give a reason for the hearing. According to the Dallas Business Journal, the hearing is in response to the NY Post article that claimed JC Penney was dropping its plan to carry Martha Stewart-designed items–branded “jcp everyday”–in its stores. Obviously, if JC Penney voluntarily quits carrying the contested products, the lawsuit is ended in Macy’s favor.

After the original article ran in the NY Post, a spokesperson for MSLO stated “J.C. Penney remains one of our many retail partners. Our agreement with them is in force, and we have no intention of ending it,” indicating they would not be receptive to an early termination of the agreement. Unless there is specific language in the contract that allows JC Penney to do so, it is expected that MSLO may itself sue JC Penney for breach of contract.

From the Dallas Business Journal:

Oing oversaw the lengthy non-jury trial on a claim by Macy’s that Penney’s 2011 deal with Stewart violated her 2006 agreement with the Cincinnati-based retailer. Oing’s decision in the suit is expected soon. A source told Bloomberg that Oing intends to ask Penney’s lawyers if the story is true because it could affect his ruling on the contract.

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JC Penney Appears Poised to End Partnership with Martha

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Things just got more complicated for Martha and Co.

To most following the Martha vs. Macy’s trial, it looks very unlikely that Martha and JC Penney will prevail. In a nutshell: Although Martha’s contract with Macy’s did, in fact, allow for Martha to open stand-alone Martha Stewart stores that offer products in categories–housewares, bedding, bath, and cookware–that would compete with those items offered at Macy’s, the idea that Martha’s “store within a store” actually qualifies as a “stand alone” seems dubious, at best. Ron Johnson, the JC Penney CEO who developed the “store within a store” idea and created the partnership with MSLO, was ousted in April 2013. His predecessor, Mike Ullman, was reappointed to take over the company and has shown little to no enthusiasm for the plan.

Yesterday, reports surfaced that Penney’s was planning to discontinue offering products designed by Martha Stewart in those categories deemed exclusive  in Martha’s contract with Macy’s, effectively throwing in the towel to end the ongoing lawsuit. More worrisome are reports that JC Penney was also ending its entire partnership with Martha, and would not be selling any Martha Stewart products, even in categories that did not impinge upon the Martha-Macy’s contract. According to one insider, CEO Ullman has said, “Her designs aren’t that great. They’re not selling, and they’re nothing that your normal Joe Schmoe can’t come up with.”

Further complicating the matter is the fact that, as part of its partnership with MSLO, JC Penney purchased a 16.6-percent stake in MSLO, infusing the cash-strapped company with $38.5 million. Obviously, MSLO would prefer to see their partnership with JC Penney continue. A MSLO spokesperson has released as statement saying, “J.C. Penney remains one of our many retail partners. Our agreement with them is in force, and we have no intention of ending it.”

If JC Penney does end its partnership with Martha, it is expected that MSLO will sue JC Penney to enforce the contract, unless there is specific language in the contract allowing JC Penney to end it at any time. MSLO had projected its merchandising agreement with JC Penney to generate $200 million dollars in much-needed revenue for the company over the next several years. MSLO has become increasingly dependent upon revenue generated through licensing and merchandising agreements, as sales through its magazine divisions have slowed and Martha’s presence on television has diminished. MSLO stock prices sunk when the news of the end of its JC Penney partnership was leaked.

From the NY Post (as is the above photo):

Ullman, a former Penney CEO who returned to the helm in April to repair damage from a disastrously unsuccessful turnaround effort by Johnson, began to broadcast the split with the beleaguered domestic diva to workers in recent weeks, insiders said.

However, Ullman was determined to give Stewart the boot from the get-go, insiders said.

As reported by The Post, Ullman initially reached out to Macy’s CEO Terry Lundgren to settle the lawsuit, which had already gone to trial with dramatic testimony from Lundgren, Johnson and Stewart herself.

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Martha vs. Macy’s Trial to Resume Monday

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If you have been following the trial, you likely remember that the judge in the case ordered the parties into mediation while the trial was in recess, in the hope that they could resolve the dispute without a ruling from the court. No such settlement emerged, and so the trial will resume again next Monday. Much is on the line, especially for J.C. Penney and MSLO, as both companies have lately had disappointing financials. Macy’s, seen as the likely beneficiary of a court ruling, has essentially no reason to negotiate or settle with the other parties.

From MarketsPress website:

The three parties Macy’s, J.C. Penney and Martha Stewart Living Omnimedia were sent into mediation by the officiating Judge Jeffrey Oing. He had hoped to resolve the dispute mutually during the time the non-jury trial was in a recess owing to the conflicts in the schedule.

However, even on Friday there was no evidence of any deal being stuck and witnesses would be testifying the same in the early part of this week according to a person who knows the case. The person who was not authorized to speak publicly and wished to remain anonymous told that the witnesses might include a few J.C. Penney marketing executives.

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Let us not forget that, in addition to all the other things on Martha’s plate, she also serves as Non-Executive Chairman of the Board at MSLO, the company she founded. The management of the company is handled by a management team currently without  a leader, after Lisa Gersh stepped down in December 2012. (A replacement for Gersh has yet to be named.) Yesterday morning, MSLO had a telephone presentation to its investors to review 1Q results for the company.

You can read the entire transcript of the earnings call at Seeking Alpha (which may require free registration), if you’re interested in the behind-the-scenes details of the company’s workings. Some interesting points include:

– Revenue for the quarter totaled $37 million, down 25% from the prior year quarter. Of the total $12.6 million absolute dollar decline in revenue, approximately $9 million can be attributed to the restructuring actions taken in publishing and broadcasting last year.

– Publishing segment revenue declined 21% in the quarter, reflecting lower print advertising and newsstand revenue, offset somewhat by a 12% growth in digital advertising revenue.

– Print revenue declined by $7 million, including $3.2 million on the advertising side and $3.8 million on the circulation side.

– Our digital advertising revenue of $4.8 million was a record first quarter performance for this business and included a significant increase in video related ad revenue.

– Merchandising expenses were significantly higher in this year’s first quarter, due largely to cost related to ramping up for the JC Penney launch.

– There is still uncertainty with respect to revenues to be generated by JC Penney partnership, due to the pending court case. Those royalty revenues were not included in the forecast for 2Q.

So, what we see from the earnings call is further proof of the shift underway at MSLO, as the company seeks to streamline its publication division and also take advantage of new media as a distribution channel for Martha’s sought-after ideas and expertise. Industry-wide, publishing is undergoing much turmoil at this time, but MSLO is well-positioned to become profitable through its merchandising partnerships with major retailers like Macy’s, Home Depot, Michael’s, Staples, and, eventually, JC Penney.

From the meeting transcript, posted on Seeking Alpha:

Before turning the call over to Ken (West, Chief Financial Officer, MSLO), I want to update you quickly on a few items of interest. First, we are excited to report that our rollout with JC Penney is under way. In April, JC Penney’s began rolling out Martha Celebrations, our new line of disposable, stylish paper products for easy entertaining, as well as MarthaWindow, MarthaLighting, MarthaRugs and MarthaMirrors in JC Penney stores and on jcp.com. The rollout will continue through much of the second quarter.

Additionally, we have had some initial discussions with JC Penney’s new CEO, Mike Ullman and other executives. All of us greatly value our partnership and we are looking forward to working with the new team.

In conjunction with the management changes at JC Penney, we reported earlier this month that their two representatives on the MSLO Board have left JC Penney and have resigned from our board as well. JC Penney is actively identifying new designees and we anticipate they will appoint replacement representatives in the near future.

MSLO Discusses 1Q Results with Investors

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JC Penney Begins Selling Disputed Goods Designed by Martha

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The new house line of home goods at JC Penney, “JCP Everyday”, is now on sale in stores and online! It is well-known that these products were designed by MSLO employees, although they are not allowed to carry the “Martha Stewart” name, pending resolution of the current court case. Some things I noticed as I viewed the items online:

1. They products definitely bear some of Martha’s signature design elements, the hen-egg blue, the faux bois pattern (one of Martha’s favorites), and the overall elevate taste level are definitely Martha-inspired.

2. Most of the products look nothing like similar items for sale at Macy’s as part of the Martha Stewart Collection. True, the pasty bags at one retailer look like the pasty bags at the other–but that’s because of the design requirements inherent in those particular items. 

3. I’m intrigued by the “JCP Everyday” logo (see cookie cutters image above, bottom row at right). The two overlapping houses do, in fact, make an “M”, don’t they? Macy’s brought this up in the court case, as they sought an injunction to halt the sale of these items, even though they do not carry the “Martha Stewart” name on them. The judge denied Macy’s request, and they have appealed. Further, these items are not allowed to be sold in the Martha Stewart stores-within-stores at JC Penney, nor be placed anywhere nearby, pending the outcome of the current court case–a step taken to minimize harm to Macy’s, should they ultimately prevail in court.

FOMs: What do you think? My own message to Macy’s is this: Calm the heck down, would you? It’s clear Martha and her team have no intention of cannibalizing their own profits generated by sales at Macy’s. That wouldn’t be very smart, would it?

From the Reuters article:

“As of today, those products are on the floor and online,” Paul Rutenis, general merchandise manager of J.C. Penney’s home department, said on Monday in testimony in New York State Supreme Court.

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Martha vs. Macy’s: Judge Orders Mediation, NY Times Article on Why the Case Matters

Martha in Court

Yesterday, the New York Times had an article on the subject underlying the current court case between Macy’s and MSLO: that it is essentially “a schoolyard fight between two boys — the chief executives of Macy’s and J. C. Penney — over the most popular girl on the playground.”

If you have been following MSLO lately, you would not be blamed for worrying about the current state of the company–the stock price has plummeted and stabilized at the low end, the company is heavily vested in traditional media (which is undergoing much tumult industry-wide) and has suffered layoffs, it has all but lost its television presence, and there is unsettled leadership (former CEO Lisa Gersh stepped down after only five months at the helm). The one fiscal bright spot at the company of late has been its merchandising. Simply, Martha is still seen in the eyes of the public as an arbiter of good taste and high quality, and most importantly, consumers trust her. If Martha says it’s a good thing–you can be sure it’s a good thing.

It is Martha’s reputation for producing good products that the two retail giants–Macy’s and JC Penney’s–are hoping to leverage in their stores. Indeed, embattled JC Penney’s CEO Ron Johnson’s job may depend on his Martha Stewart-anchored plan to resuscitate that company’s housewares department. And, as the Associated Press reported:

“[Macy’s CEO Terry] Lundgren said Macy’s has spent 40 percent of its overall marketing on the Martha Stewart brand and other labels in the home area, even though the home category represents 17 percent of total sales. That’s because even though the home area is typically slow turning, it drives shoppers to the store. “I need the Martha Stewart business to be exclusive,” Lundgren said. “I don’t have a substitute.”

The judge ordered the three companies into mediation on Friday, in an attempt to have them resolve the issues themselves without a court-ordered judgement. So, even as the courtroom drama continues, one thing is for certain: the Martha Stewart brand is still as strong as ever in the eyes of consumers. And that is most definitely a good thing for MSLO.

Check out this very flattering quote from the New York Times article :

It is easy to forget that Ms. Stewart altered the way that people live by decoupling class and taste. Part of the reason that she seems embattled — her media empire is shrinking fast — is that she won her corner of the culture war. When you go into Target or Walmart and see a sage green towel that is soft to the touch, it may not carry her brand, but it reflects her hand. Her tasteful touch — in colors, in cooking, in bedding — is now ubiquitous; she just doesn’t get to cash all the checks anymore.

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MSLO CEO Lisa Gersh is Stepping Down (Already)

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After only 5 months in the CEO position at MSLO, Lisa Gersh is stepping down. Gersh joined the company in June 2011 as president and COO but was named CEO in July. Before joining Martha Stewart Living, Gersh co-founded Oxygen Media LLC where she was president and COO from 1998 until 2007 when it was acquired by NBC Universal.

Two things:

1. Gersh’s television background doesn’t really fit with MSLO since Martha’s cable TV show was cancelled by Hallmark. Now, Martha’s only regular television presence is on PBS, where she hosts “Martha Stewart’s Cooking School”. Of course, being a commercial-free channel doesn’t exactly make PBS the best place to promote Martha’s own products and those of her sponsors.

2. Word on the street is that there was tension between Gersh, an experienced media executive, and Martha herself. Uh-oh.

Wall Street was not happy with the news of Gersh’s departure: Shares of MSLO fell as much as 9.7% in early trading after the news surfaced.

FOMs: Whew! With all the changes that occurred in 2013, MSLO is positioned to have a stellar 2013. There are lots of new projects on their way: a new vegetarian EDF cookbook in January, resolution of the Macy’s lawsuit in January, the new store-within-a-store at J.C. Penney in March, Martha’s “Living the Good Long Life” book in May. Full speed ahead!

From Bloomberg.com:

Martha Stewart Living Omnimedia Inc. (MSO), the company founded by home-decor guru Martha Stewart, said Chief Executive Officer Lisa Gersh will step down, part of an effort to bolster its merchandising business.

After sluggish advertising sales in its media business contributed to four straight years of losses and declining revenue, Martha Stewart Living is focusing more on selling merchandise through retailers. The company entered an agreement in late 2011 with J.C. Penney Co., a deal that will start boosting revenue by early 2013, according to the statement.

“We are now increasing our capabilities in merchandising and plan to take full advantage of that opportunity for the benefit of our shareholders,” Stewart, who serves as non- executive chairman, said in the statement.

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Forbes Details Plan to Evolve Martha Stewart Brand

There has been much discussion in the media lately about MSLO and the Martha Stewart brand. Martha is a recognized and much-admired personality, but the challenge faced by the company is how best to convert Martha’s reputation for quality and entrepreneurship into revenue. They have already made cuts to reduce expenditures, but Wall Street and others are watching to see how MSLO navigates the road ahead. Forbes is confident the company will thrive. As they point out, “She can figure it out. Martha is one smart and tough cookie.” Agreed!

In the Forbes article, the magazine outlines its own plan to revive the Martha Stewart brand, which I’ve summarized below:

Make Deals to Evolve the Brand

Evolving a brand is different than growing a brand. To evolve a brand you need to find new affiliations to update the brand message. Here are three ways.

1. Find New Partners. Making deals to breathe life into the brand is essential. Stewart says “We are forging ahead with new partnerships and new products, and we expect to be able to gain the international foothold that has been so elusive in the last few years.”

2. Find New Platforms. Another important task is to get the new brand message to new audiences in new ways.  For example, Stewart is now exploring reality-TV deals and developing short how-to content for the Web and mobile devices.

3. Find Ways to Diversify. Having only one voice of the brand does not cut it anymore. Over the years, the areas of the homemaking that Martha pioneered have since splintered into market segments. Forbes points out that Oprah diversified into market-specific segments by promoting Dr. Phil and Dr. Oz, both of whom are leaders in their respective areas. Martha has started to do this with Emeril (whose licensing rights were acquired in 2008), and with “Mad Hungry” lead by MSLO Food Editor, Lucinda Scala Quinn.

You can read the entire Forbes article here.

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