Martha Stewart Living awaits founder's return

It won’t be business as usual when Martha Stewart makes the transition this weekend from prisoner to multimedia empress.

Known for her tough management style before prison, Stewart will need to show a sweeter side as she returns to Martha Stewart Living Omnimedia Inc., which has been demoralized by layoffs and sales declines since her legal troubles surfaced in the media almost three years ago, industry observers say.

Stewart, who abdicated her chairman and chief executive titles following her 2003 indictment in a stock scandal, will simply be known as founder when she resumes work Monday after serving five months in a West Virginia prison for her felony conviction. Her case is on appeal.

She’ll resume writing her monthly column, star in two TV shows — a revival of her homemaking show, and her own version of “The Apprentice” — and get back to being the visionary of her public company. She will even start drawing again on her $900,000-a-year salary, while serving five months of home confinement at her Bedford, N.Y., estate.

New faces
But work relationships may be tested. Stewart faces a crop of new faces, including Chief Executive and President Susan Lyne, who replaced longtime confidante Sharon Patrick last November. Lyne, a former television programming executive, already has been making executive changes of her own.

There are even rumblings that Stewart wants to eventually reclaim her chief executive title.

“Martha Stewart just can’t walk back in, and take over as if she has been there for the last three years,” said Brendan Burnett-Stohner, vice chair of Christian & Timbers, an executive recruiting company in New York. “She needs to prove that she is a better person, humbled and can re-earn their respect.”

Karen Harvey, principal of an executive search firm that bears her name, said Stewart will have to “really listen, and really walk the floors.”

Outside supporters
Stewart has won plenty of sympathy from outsiders. To clear the cloud of uncertainty hanging over her company, she went to prison rather than waiting for her appeal’s outcome. After her release, she will be allowed to work outside her Bedford home for 48 hours a week. She’ll be sporting an electronic anklet so authorities can monitor her movements.

Investors, counting on a positive bounce from Stewart’s return, have bid up her company’s stock to triple the level it was when she was convicted on March 5, 2004. The stock is trading near the high end of its 52-week range of $8.25 to $37.45 per share on the New York Stock Exchange.

Still, the company is struggling. Last week, Martha Stewart Living reported a fourth-quarter loss of $7.3 million, compared with a profit of $2.4 million a year earlier — reflecting continued declining magazine advertising revenues and the hiatus of its syndicated daily cooking show starring Stewart. Total revenues fell 15 percent to $60.2 million.

The company also forecast a first-quarter loss that’s wider than many analysts expected.

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The bright spot is that the flagship magazine Martha Stewart Living — which accounted for about one-third of overall revenues last year— is slated to post positive revenue and ad page growth in the second quarter.

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In a recent interview with The Associated Press, Lyne said Stewart’s experience and creativity will help the company anticipate trends among female buyers.

Stewart will spend at least half her time on TV projects with reality TV guru Mark Burnett, which will enhance the brand, Lyne said. Burnett will receive company stock options that, based on current prices, are already worth upward of $48 million.

The brand
The company’s warm embrace of Stewart may appear at odds with its recent moves to de-emphasize her name, expanding into titles like Everyday Food and shrinking Stewart’s name on the masthead of Martha Stewart Living.

But Lyne has told investors the company never backed away from the brand, and that “the Martha Stewart brand has always been, and remains, our greatest asset.”

Investors will be watching how Stewart gets along with Lyne, who was named to her current post in November after Stewart went to prison. Lyne, who had joined the company board in June, has visited Stewart but hasn’t had much daily interaction with her.

On Tuesday, the company announced the resignation of Publisher and Executive Vice President Suzanne Sobel, a longtime employee who most recently oversaw the growing roster of magazines.

The timing — just days before Stewart’s release — surprised many analysts, who noted the circulation of Martha Stewart Living is improving. They suggested that Lyne, a former ABC entertainment president who has a reputation for being strong but reserved, may want to bring in some of her own people.

That could create some tension with Stewart.

“Yes, the two are dancing gingerly, but if someone steps on the other’s foot, there could be sparks flying,” Wall Street analyst Dennis McAlpine of McAlpine Associates said.