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Martha Stewart Living Omnimedia, Inc. (NYSE:MSO)

Q1 2009 Earnings Call

April 30, 2009 11:00 am ET

Executives

Dan Weinstein - Director of Financial Reporting and Planning

Charles A. Koppelman - Executive Chairman

Robin Marino - Co-Chief Executive Officer and President of Merchandising

Kelli Turner - Executive Vice President and Chief Financial Officer

Analysts

Richard Ingrassia - Roth Capital Partners

Michael Meltz - J.P. Morgan

David Bank - RBC Capital Markets

David Kestenbaum - Morgan Joseph & Co. Inc.

Operator

Good morning and welcome to Martha Stewart Living Omnimedia first quarter 2009 earnings conference call and webcast. (Operator Instructions)

At this time it is my pleasure to introduce Dan Weinstein, Director of Financial Reporting and Planning at Martha Stewart Living Omnimedia. Dan, you may begin when you're ready.

Dan Weinstein

Thanks and good morning, everyone. Welcome to Martha Stewart Living Omnimedia's 2009 first quarter earnings conference call.

Before we begin let me remind you that our discussions will contain forward-looking statements which are made pursuant to the Private Securities Litigation Reform Act of 1995 as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors.

Thank you and now I'll turn the call over to Charles.

Charles A. Koppelman

Thank you all for joining us this morning.

I'd like first to welcome Kelli Turner to the MSLO team as our new Executive Vice President and Chief Financial Officer. Kelli brings outstanding and diverse credentials in finance, operations, corporate planning and strategy to our team. Since arriving a short five weeks ago she has been diving right into the business and we're glad to have her here. You'll hear from her in a few minutes when we cover the financial results.

MSLO performed as we expected it would in the first quarter. Though the challenges in the print advertising market and the anticipated K-Mart decline are weighing on the financial results, it is clear that our readers, viewers, users, listeners and retail customers are all coming to us for content, ideas and products that speak to what they're looking for in these difficult times.

It also comes back to our brands, which stand for quality and value. In the latest example, just last week Media Industry News recognized Martha Stewart Living as the brand that most exemplifies the very best in customer engagement in print, online, on the air and on store shelves nationwide. We believe customers will be looking to Martha Stewart Living and our other brands even more as the economy improves, and we have been hard at work on further strengthening and diversifying the business to take advantage of better times ahead. Whether it's our new Hain partnership, our new pets initiative, the addition of our Emeril business or new relationships yet to come, we remain very optimistic about the opportunities ahead.

Looking now at our media results in the quarter, the challenges in Publishing are evident. But instead of stating the obvious, I'd like to discuss more broadly how our media businesses are evolving and point to what we think are some pretty good indicators as we move forward.

High quality magazines will always have a place in the market if they're differentiated, have strong brands behind them, and if they speak to consumers. Our titles fit those definitions. In fact, this quarter we actually grew our total number of subscribers across all of our titles, which is quite an accomplishment in an environment where other magazines are shutting their doors. However, we are not immune to the challenges that the rest of the industry is facing with marketers and at newsstands. On the advertising side, revenues were down in the neighborhood of 30%, as we expected.

Looking at our book business, we continue to receive a positive response from the readers as evidenced by our newest bestseller, "Martha Stewart's Encyclopedia of Crafts," which debuted at number two on the New York Times bestseller list. It has also appeared on the bestseller lists in the Wall Street Journal and Publisher's Weekly. And earlier this week we officially launched "Emeril at the Grill: A Cookbook For All Seasons," Emeril's first book in a 10-title deal with Harper Studios.

One area that I'm extremely proud of is our Internet business. Several years of investment in our digital platform is beginning to pay off. Advertising revenue is up 13% in the first quarter and the second quarter so far looks even stronger. This is remarkable given that overall advertising pressure has been hitting many online. We're succeeding here not only because of our brands but because of our strategy. We're doing a much better job of organizing our content, making it more relevant to users and using our presence to better market our advertiser's products and our own products.

And consumers are responding. More visitors are coming to our site and staying longer. Page views are up 49% from the prior year quarter and traffic to our online Easter workshop doubled from last year.

We're also building new brands in our digital business and new tools that we expect to further engage and grow our user base. To continue building our Martha Stewart brand among loyal consumers and to reach a younger demographic, we're using blogs and Twitter. In fact, Martha has over 500,000 followers on Twitter.

These tools have been very useful in launching new brands like Francesca and Sharkey, Martha's two French bulldogs who recently unveiled their own blog called "The Daily Wag." This just one piece of our Pet strategy, which includes the launch of our new pets channel at www.MarthaStewart.com/pets. The website, which is primarily sponsored by Nestle Purina Pet Care as part of a multi-platform marketing initiative, provides fresh ideas and information related to pet care. We're excited about the pet space and see several merchandising opportunities for us. Our research shows many similarities to what we saw with crafts when we entered that business two years ago.

Our Broadcast segment remains a steady performer, with an increase in adjusted EBITDA this quarter despite flat revenue and a soft advertising market. While TV ratings are down somewhat, we continue to improve our reach with our core demographic of women 25 to 49, a very desirable target for marketers.

We've also done a good job of diversifying our Broadcasting business, from our Whatever Girls popular radio show on Sirius and their critically acclaimed TV program on Fine Living to Emeril's TV series, Emeril Green on Discovery's Planet Green. Emeril is currently taping the second season of Emeril Green while production of the second season of Whatever Martha kicks off in June.

We are also managing the cost side of our business aggressively. We've taken headcount reductions in every segment and we're continually identifying other opportunities for savings without sacrificing the quality of products delivered to our customers. In addition, we're seeing some offsetting benefit from lower print, paper and distribution costs given the softness in magazine advertising. While we build efficiency into individual platforms, we also know that our platforms work together to create a powerful tool for marketers. We believe we are setting the pace in what we call omni marketing as evidenced by our new program with Purina.

In summary, the media environment remains challenging but we have some effective tools - diversity, strong brands, loyal customers, and the creativity and multimedia platforms to execute integrated marketing programs.

Of course, Merchandising also plays a big role in our future growth and, to update you on what we're doing there, I'll turn the call over to Robin Marino.

Robin Marino

Thank you, Charles, and good morning, everyone.

Merchandising held its own in the first quarter. While the results show a decline from the prior year, that comparison includes higher K-Mart contribution in the year ago quarter. Absent K-Mart, our business showed solid performance in a challenging retail environment, led by contributions from Emeril and Martha Stewart For 1-800-flowers.com.

During the quarter we signed a new licensing agreement with Hain Celestial Group for a Martha Stewart line of natural home cleaning products. The program, appropriately called Martha Stewart Clean, is expected to be introduced at retail later this year. In addition, we continued to execute on cost reduction initiatives which helped partially offset the revenue decline in the quarter.

Now I'd like to touch on some of our key partnerships and initiatives. The Martha Stewart Collection continues to perform well for Macy's. We were excited to learn that it has become Macy's largest volume brand in their home business. We've had notable success in numerous categories and will expand our presence there accordingly.

Our Martha Stewart crafts business continues to grow nicely, driven by ongoing distribution expansion, integrated marketing initiatives, and an ever-improving lineup of products.

Emeril also continues to perform very well. His recently introduced coffee line with Timothy's is showing strong early results across a variety of distribution channels. These include the hotel sector, specialty chains like Bed, Bath & Beyond, and web retailers like Amazon.com. Emeril is also contributing revenue through his line of cookware with All-Clad and food products with B&G.

In addition to our current businesses we have a vibrant pipeline of future merchandising opportunities. As I always say, media creates demand, merchandising fulfils it. Charles talked about the multimedia platform media campaign introduced this quarter on pets. It is an area where we can build strong brand equity as evidenced by our already popular blog and pets channel. We see many opportunities in merchandising for this category going forward.

Food is another area for development. As we mentioned on the last call, we're concluding a two-year run with Costco in which we've been able to gain valuable learning with respect to developing the Kirkland Signature Martha Stewart co-branded food products. Now our goal is to take what we've learned an apply it to a much broader Martha Stewart food line that will be distributed in a wide variety of outlets.

The consumer spending environment remains pretty weak, but we offer quality products that are centered on the home and represent value at affordable price points. This is a good position to be in as people are spending more time at home. It provides us with a measure of resilience during challenging times, but we are also very focused on managing costs and on further diversifying our business.

As we said on our last call, 2009 will be a transition year as we continue to realize the impact of the wind down of our K-Mart relationship. We think of 2009 as the end of an era as we transition out of our relationship with K-Mart and into a new era in 2010 where we'll have the pieces in place to be a stronger and more diversified company.

A big part of this new era will of course be a new relationship at mass retail and I can tell you that we continue to progress positively on that front. Our designers are hard at work on new designs and concepts for 2010. We have a lot of work to do but we are confident and excited about our future, so stay tuned.

Now I'll turn the call over to Kelli to take you through the financials.

Kelli Turner

Thank you, Robin. It's great to be here at Martha Stewart and I'm looking forward to getting to know many of you on our call in the weeks and months ahead.

I wanted to take a moment to share with you why I am excited about the opportunity here. One constant I've learned throughout my career is the importance of brands as a business proposition. Martha Stewart possesses not only a compelling multi-platform business model but it also has what very few companies can claim - a well-respected consumer brand that is a household name. That combination and the many opportunities in front of the company are what drew me to MSLO.

Of course, while the future is exciting, I'm also joining the company in a very challenging economic environment. As Charles and Robin have indicated, our results reflect a tough magazine advertising climate as well as the expected decline from K-Mart. These factors were offset in part by our efforts to reduce expenses across our businesses. We've decreased staffing costs in each of our segments while also benefiting from efficiencies we've implemented in consumer marketing, editorial and TV production.

Total revenues were $50.4 million in the first quarter of 2009 compared to $67.8 million in the prior year quarter. The biggest contributors to the decrease were lower Publishing revenue and the $5 million decline in revenue from K-Mart as the relationship winds down.

Adjusted EBITDA loss for the first quarter was $5 million compared to a loss of $1.2 million in the prior year quarter. The decline reflects lower revenue partially offset by cost savings in the Publishing and Merchandising segments as well as the reduction of our compensation accrual and lower compensation costs across our businesses.

Net loss per share was $0.31 in the first quarter versus a loss of $0.08 a year ago. Included in the results is an impairment charge of $7.1 million or $0.13 per share for the quarter related to a cost-based equity investment. When excluding the impairment charge recorded in the quarter net loss per share was $0.18.

Now for our year-over-year performance on a segment basis:

Overall Publishing revenue was down 30% versus the prior year's quarter. Print advertising revenue decreased 30% due to lower ad paging and circulation declined 24% though, as Charles noted, overall subscribership increased. The prior year quarter benefited from two special newsstand-only magazine issues. Also, we had greater revenue in the first quarter of 2008 due to the timing of delivery of new book manuscripts. Publishing's adjusted EBITDA loss was $1.4 million in the first quarter of 2009 compared to adjusted EBITDA of $2.4 million in the prior year's quarter.

Our Internet business continues to gain traction. On a reported basis Internet revenues were down, but keep in mind that last year's numbers included our flowers business, which was moved to the Merchandising segment in the second quarter of last year. Excluding the flowers business from last year's results, revenue grew 13%. Internet's adjusted EBITDA loss was $1.5 million in the first quarter of 2009 and a loss of $1.8 million in 2008.

Broadcasting revenue was essentially flat at $10.5 million in the first quarter. Softer ratings were partially offset by the addition of Emeril programming and somewhat higher CPM. Broadcasting's adjusted EBITDA was $1 million, up from about $500,000 in last year's first quarter.

Merchandising revenue totaled $8.9 million compared with $13.1 million a year ago. Excluding K-Mart revenues for both quarters, revenues increased approximately 18%. Emeril and our partnership with 1-800-flowers.com helped partially offset the K-Mart differential. Merchandising's adjusted EBITDA was $5.5 million in the quarter compared with $7 million in the prior year's quarter.

One item to note is that our new relationship with Hain provided us with approximately $2 million of Hain common stock in the first quarter. This was only slightly included in this quarter's [inaudible] result as it is being amortized over the contract term, but we have an approximately $2 million monetizable asset with potential upside.

Adjusted EBITDA loss at corporate improved to $8.6 million from $9.3 million last year. Corporate results include lower compensation accrual, lower compensation cost, and an increase in severance charges in the quarter. The company is making progress in aligning costs with the market environment and we expect that these actions will support greater operating leverage as the economy improves.

Our balance sheet remains very, very healthy, with a net cash and short-term investments position of $43 million at the end of the first quarter. We finished the first quarter of 2009 with $60 million in total cash and cash equivalents and short-term investments and $18 million in debt. We are managing expenses carefully and preserving cash with a focus on making strategic investments in growth.

As we look at the second quarter we see continued challenges in print advertising combined with softness at newsstands, continued strength in Internet advertising, steady performance in Broadcasting, though I would note that Emeril's broadcast results were first included in the prior year's second quarter, the continued impact of the winding down of K-Mart on the Merchandising segment, and a significantly smaller corporate loss, but note that there were some large one-time charges identified in the second quarter of last year.

In closing, we continue to operate in challenging media and retail environments with limited visibility. Even so, we are encouraged with the stability shown by our Internet, Broadcast and new Merchandising businesses in particular, and we'll focus on our costs while managing a healthy balance sheet. As we move through the economic downturn we believe MSLO will continue to benefit from the increasing diversity of our revenue stream as well as the strength of our brand with both consumers and business partners.

Thank you for joining us on our call today and we will now turn it back to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Richard Ingrassia - Roth Capital Partners.

Richard Ingrassia - Roth Capital Partners

Charles, you started with a lot of comment on the digital initiatives, most of which were launched under Wenda's direction. Now that she's gone can you just give us some idea of the organization of that division now? Who's accountable for the progress and new relationships that are struck from here?

Charles A. Koppelman

First let me say that we have wonderful managers in our media business and I'll be overseeing them.

Second, we embarked on the digital build out prior to Wenda's arrival. We're excited about the digital space and we'll continue to build upon it.

Richard Ingrassia - Roth Capital Partners

It looks like the costs are starting to come in in the operating companies, but we've also been looking for some overhead reductions and it's still largely flat year-over-year. Other than the management downsizing there so far and given Martha's renewed package, what should be our expectations for '09 there in corporate overhead?

Kelli Turner

I think as the year goes forward you will see, as I said in my remarks, you will see more significant reductions in corporate. Obviously there's some impact of Martha's new contract on that; however, I think you'll see the cost reductions that we've talked about play out as the year goes on at corporate.

Richard Ingrassia - Roth Capital Partners

I have one more question about the impairment charge, maybe just a little bit more color there than what's in the press release and how likely is it that we'll see other charges of any kind in '09?

Kelli Turner

Our impairment charge was on a cost-based equity investment in Wilton. You know, Wilton is a fantastic company with very strong and growing EBITDA, so I think really, as you all know, obviously, the equity markets have been down significant and this was just sort of based on valuation methodologies we took the impairment charge on this asset. But Wilton continues to have growing EBITDA and to do well. You can never say never, but we don't foresee anything else. This was just the analysis of this investment.

Richard Ingrassia - Roth Capital Partners

And no likelihood of any valuation adjustments on the Emeril acquisition, for example, or anything else that's at risk potentially?

Kelli Turner

Nothing that we see.

Operator

Your next question comes from Michael Meltz - J.P. Morgan.

Michael Meltz - J.P. Morgan

One follow up on that last question there. So the writedown, that's the 10% ownership stake that you had in that crafts business, is that what that relates to?

Charles A. Koppelman

That's correct.

Michael Meltz - J.P. Morgan

And so you've written it down to zero basically?

Charles A. Koppelman

No.

Kelli Turner

The impairment charge was $7.1 million. It was actually on our books - we invested $10 million in cash but we had a prior equity interest that was converted into a greater amount than that, so it was on our books for more than the $10 million.

Michael Meltz - J.P. Morgan

I think I have four questions. You said non-K-Mart was up 18% in the quarter. You had a true-up last year. Can you just talk about what were K-Mart sales down in the quarter? That would imply K-Mart revenue is down 60%, but I really don't think sales were down that much. Can you give a little more clarity there?

Kelli Turner

You know, Michael, we don't comment on the data relating to our partnerships in terms of the sales, but there's no question as we near the end of our K-Mart agreement that they are phasing out of our business.

Michael Meltz - J.P. Morgan

Yes, but this is just reported data. Did you have a true-up in Q1 here?

Kelli Turner

What was that?

Michael Meltz - J.P. Morgan

Was there a K-Mart-related true-up in your numbers for Q1 of '09?

Charles A. Koppelman

No.

Kelli Turner

No, it wasn't that it was a true-up. But yes, there were some guarantees in last year's first quarter, so I think that's fair to say.

Michael Meltz - J.P. Morgan

Right. And were there any in this year's first quarter?

Kelli Turner

Yes, but a smaller number, much smaller number.

Michael Meltz - J.P. Morgan

Can you tell us the number?

Kelli Turner

We don't specifically break out those numbers, but I would say that it was a much smaller guarantee in the first quarter of this year.

Michael Meltz - J.P. Morgan

It's usually in your Q.

Charles A. Koppelman

Michael, what specifically do you want to know?

Michael Meltz - J.P. Morgan

I'd like to know what K-Mart sales were down year-over-year and specifically do you expect K-Mart product, your MSC product, to remain in K-Mart stores throughout this year?

Kelli Turner

The answer to that is that yes, we do expect our product to be there through the end of our term with them, but they are phasing out of it, Michael, as we move forward because they have to liquidate the inventory by the end of January of 2010, then they've got a three-month sell-off window.

Michael Meltz - J.P. Morgan

And so, as we're thinking about your K-Mart contribution this year, you have the recoupment so, if your revenues were $3 million or $3.5 million in Q1, what is the expectation of K-Mart-related revenues for this calendar year?

Kelli Turner

Actually, I think we'd feel more comfortable as it will be disclosed in the first quarter, the overall K-Mart revenues are down about $5 million. That includes guarantees and earned amounts. We don't look [inaudible] so I think Robin sort of gave you sort of the color on going forward, but I don't think we can give more specifics on that looking forward.

Michael Meltz - J.P. Morgan

You said there was some severance in the corporate line. What was that dollar amount, please?

Kelli Turner

I think the increased severance was a couple hundred thousand dollars from last year's first quarter.

Michael Meltz - J.P. Morgan

Your magazine ad revenues were actually much better than I thought they'd be given the page count. It seems like you're getting good yield even in this environment. Can you talk about what you're doing or what you're seeing on the pricing side?

Charles A. Koppelman

We're holding our pricing. The brand is incredibly strong and we're working hard.

Kelli Turner

But one thing that we would note is that [Min] had some numbers incorrect, so the ad pages, I think Min was showing it down year-to-date something like 46% and that was just an error. And year-to-date through May ad pages are down more like 30% in MSL. So maybe that is why you were expecting it to be worse.

Michael Meltz - J.P. Morgan

For the quarter, what were your ad pages down?

Kelli Turner

For the quarter ad pages were down about 35% and Martha Stewart Living actually performed slightly better than the overall number.

Michael Meltz - J.P. Morgan

Last question, on expenses and the first questioner here touched on it, but expenses at Publishing were very low. I know you did the cost takeouts and the volume declines helped you. It sounded like earlier in the year you expected cost takeouts to ramp throughout this year. Should we be thinking of this Q1 as kind of the low point or are there additional reductions that will help that number as the year goes by.

Kelli Turner

I think there's two pieces to that. We'd like the environment to get better and as the environment gets better some of the PP&D costs obviously are going to come back. But on a sort of efficiencies in the business basis, we expect that to continue to improve and, as you know, we're always looking at that.

Charles A. Koppelman

And you'll see those benefits as they occur during the course of the year.

Operator

Your next question comes from David Bank - RBC Capital Markets.

David Bank - RBC Capital Markets

I think I have four questions, which probably means I'll have like eight questions, so thanks for bearing with me. First, I just want to clarify, Charles in your opening comments I think you said that subscribers across the platform were up and yet we heard later that circulation was down, I think 24%. So can you kind of make those two things make sense? That's the first question.

The second question is Robin, I think you were kind of talking about the Costco agreement, how you're closing up a two-year agreement or you're coming off two years into the agreement and you're looking at expanding the food line. You're not concluding the Costco agreement, right? I just want to confirm that that's still going to be in place going forward.

The next question is we've completed April so I'm assuming you have pretty good visibility on the April book as well as the May book, can you talk about pacings in terms of advertising?

And the last question is I noted, you know, we're anniversarying the Emeril acquisition, but I also think that Emeril TV revenue in particular tends to be kind of lumpy, so I think it can be lumpy. Is there anything in terms of the comp that we should have a heads up for for the next couple of quarters in terms of Emeril lumpiness?

Charles A. Koppelman

Let me take your first question. When we talk about circ, some of the weakness is primarily from newsstand sales and we also did have a special issue in Q1 '09 and some higher agent commissions. But subscribers are up. And again, it speaks to the strength of the brand.

David Bank - RBC Capital Markets

I hate to be thick but can you just help me with the math? So what percent of the sales are at the newsstand versus subscriber? How do you get from a 24% decline in circ to an increase in subs? How does the math work?

Kelli Turner

Newsstand was very soft, so newsstand was down. And the number of subscribers was up, but we paid higher commissions to get those subscribers. So I think the combination of both newsstand revenues and subscription revenues being down is what led to the 24% decline in circulation. However, the point we were trying to make is that people are still reading the magazine, liking the magazine, staying with the magazine, and subscribers, number of subscribers, are actually up.

Does that help?

David Bank - RBC Capital Markets

That helps, yes, absolutely.

Robin Marino

Costco was a great laboratory for us, very much like Michael's was for crafts, and as we look forward we expect to have a much bigger and broader business. So to answer your question, we won't be doing a co-branded program with Martha Stewart and Kirkland anymore. We'll be doing a much broader food program and we anticipate that Costco will buy all of those new initiatives.

David Bank - RBC Capital Markets

Anybody in particular that you guys have spoken about publicly for other food partnerships?

Charles A. Koppelman

Yes, we just can't have that discussion with you now.

Robin Marino

And then did you have a question on Emeril?

David Bank - RBC Capital Markets

Yes, is there sort of lumpiness to the recognition of Emeril revenue, particularly on the Broadcast side as we start to anniversary the acquisition?

Charles A. Koppelman

Well, you know, Emeril's television persona continues. He's in the process of doing the new season for Planet Green and has several new wonderful ideas on tap for future television opportunities. So when you say lumpy -

David Bank - RBC Capital Markets

My sense was that if Emeril filmed a whole bunch of episodes, you wouldn't necessarily film an episode a day every day for 52 weeks. There'll be some quarters where he films more episodes and some where he films less and he would be paid in relation to that activity, so I'm just trying to get a sense of whether or not there's going to be any lumpiness in the comp year-over-year?

Kelli Turner

Yes. I mean, I would say in the third quarter of last year there were some big TV payments, so I think you will see it in the third quarter of this year that that would be lower. So still a lot of good things in this year coming in in different quarters, but the one quarter of note is that the third quarter of '08 was kind of his big television revenue.

Charles A. Koppelman

And that's not to say that by the third quarter of this year there may not be a new television situation ready to go.

Operator

Your next question comes from David Kestenbaum - Morgan Joseph & Co. Inc..

David Kestenbaum - Morgan Joseph & Co. Inc.

Since you didn't present a cash flow I was just wondering, were you free cash flow positive for the quarter and do you expect to be free cash flow positive for the year despite the lower revenue levels?

Charles A. Koppelman

We don't want to give forward-looking statements about any of the above.

Kelli Turner

I think what I would say - given that I'm new I would say that I'm not sure what definition of free cash flow you're using here. If it's EBITDA minus CapEx, obviously EBITDA was negative for the quarter so clearly that would answer the question. I mean, we have a healthy cash balance. I think you can look at the cash from quarter to quarter as it's very strong, but I don't know if that's what you're looking at as free cash flow.

David Kestenbaum - Morgan Joseph & Co. Inc.

And then as far as the Costco relationship, so you're going to be outsourcing the production of the food is the way I understand it, right? Previously Costco had done that for you.

Robin Marino

That's correct.

David Kestenbaum - Morgan Joseph & Co. Inc.

And then what's the timing on that? Have you announced a vendor or are you close to aligning a vendor for that?

Robin Marino

No, as Charles said, we haven't announced that yet. Those partnerships are all under way.

Operator

(Operator Instructions) Your next question comes from Michael Meltz - J.P. Morgan.

Michael Meltz - J.P. Morgan

Kelli, in the qualitative comments you gave about as you look ahead, are you seeing any improvement in magazine ad trends? We know it's still difficult, but what have you seen? July's basically closed at this point. Can you comment on that, please?

Charles A. Koppelman

You know, Michael, anecdotally when I talk to different publishers - last night I had dinner with a CEO of a major publisher - to quote, I guess, Bernanke, there are some green shoots out there in some categories. Again, when there are magazine closings I think that bodes well for a brand as strong as ours. So, you know, we're guardedly, cautiously and every other thing I can underline going forward but there looks like a little daylight.

Kelli Turner

So you might just [inaudible] that as the year progresses. I mean, the second quarter is expected to stay relatively, you know, weak, but I think as the year progresses it hopefully will get better.

Michael Meltz - J.P. Morgan

And last question, you talked a lot, Robin, about the food deal of sorts. Should our expectation be as you're thinking about K-Mart winding down that you'll be able to form a mass retail partnership in '09 before February 2010 or how should we be thinking about that?

Robin Marino

Well, we expect to be ready for a seamless transition into 2010.

Operator

This concludes today's conference call. You may now disconnect.

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