Martha Stewart Living (MSO) reports EPS loss of ($0.14); beats consensus estimates on better-than-expected results from Merchandising business

Martha Stewart Living Omnimedia (MSO) reported results  on February 23, 2005 for
the fourth quarter and year end 2004.  Below are some highlights.

Results 4Q04 vs. 4Q03:

• GAAP EPS: ($0.15) vs. $0.05
• EPS from continuing operations: ($0.14) vs. $0.05
• Consensus EPS: ($0.17)
• Previous EPS guidance: ($0.20)
• Total revenues: $60.2M vs. $70.9M (-15%)
• Operating income before D&A (OIDA): ($1.8M) vs. $7.0M
• Operating income: ($9.5M) vs. $2.3M
• Income from continuing operations: ($7.2M) vs. $2.6M
• Net Income: ($7.3M) vs. $2.4M
• Cash + ST investments: $140M vs. $169M (-17%)
• Debt: none
• Employees: 478 vs. 558 (-14%)

Segment Breakdown 4Q04 vs. 4Q03:

Publishing
Revenue: $26.1M vs. $33.1M (-21%)
Operating Income before D&A: ($11.1M) vs. $0.4M
Operating margin: NA

Television
Revenue: $1.1M vs. $5.9M (-82%)
Operating Income before D&A: ($1.4M) vs. (0.9M)
Operating margin: NA

Merchandising
Revenue: $23.7M vs. $22.5M (+5.5%)
Operating Income before D&A: $20.0M vs. $18.5M (+8%)
Operating margin: 84.5% vs. 82.4% (+210 bps)

Internet/Direct Commerce:
Revenue: $9.3M vs. $9.4M (-0.5%)
Operating Income before D&A: ($0.8M) vs. ($1.0M)
Operating margin: NA

1Q05 Guidance:

• Revenue: $38M for total company; $28M for publishing unit
• Operating income before D&A: loss of $6.5M-$7.0M
• EPS: ($0.35)
• Television segment: less than $1M in revenues; operating loss of $1.5M-$2.0M
• Merchandising: $10M in revenues; operating income of $6.0-$6.5M
• Internet/Direct Commerce: $2M in revenues; operating loss of $1.5M
• Corporate expense: $9M
• Amortization of non-cash stock expense: $2M

Quick comments:

• Martha Stewart Living magazine: decline in advertising revenue due to: (1) 50% decrease in ad pages to 137 and (2) lower ad rates of $1.8M; newsstand sales down 3.5% despite sales of 500,000 copies of the December issue (15%).
• Everyday Food magazine: revenues increased 40% to $3.4M; subscriptions increased 250% to $608k from $239k as subscriptions base increased to 800,000 from 500,000 in September 2003.
• Body & Soul magazine: revenues of $2M; expenses increased to $4.6M ($3.1M was acquisition related)
• Television revenues suffered from absence of the daily syndicated program; the program will resume in Q2 2005 and will be distributed by NBC.
• Merchandising revenues benefited from (1) Kmart meeting minimum revenue provisions resulting in revenues of $10.7M, and (2) the termination of the Signature flooring program, resulting in royalties of $1.6M
• Closed down Internet site during Q4 and shipped last catalog; no major write-downs expected, but lower overhead and technology costs
• Direct commerce business will focus on the profitable flowers business and delivering content