MARTHA STEWART Reeling company loses its queen

Stewart's magazine has seen a decline in circulation and ad revenue.
NEW YORK (AP) -- Can Martha Stewart's company survive the latest troubles of Martha Stewart?
Her die-hard fans appear to still love her branded merchandise, but some advertisers, who have been skittish about appearing in her magazines and on TV, could pull back even more.
"Without Martha, the company is only a shell. She's it," said Terry Gaudet, a stockholder from West Hartford, Conn., who was at Tuesday's shareholders meeting.
Others, however, haven't lost faith.
"The brand will survive because Martha has gone beyond being a person who represents a brand," said Jerry Della Femina, chairman of Della Femina Rothschild Jeary, an advertising company, who has remained a fan of Stewart's.
Stepping down
Stewart, slapped with a nine-count indictment, said late Wednesday that she is relinquishing her responsibilities as chairman and chief executive of Martha Stewart Living Omnimedia but will stay on its board. Stewart, who owns 61 percent of the company's stock, will continue to serve as chief creative officer.
The company named Sharon Patrick, president and chief operating officer, as chief executive. Jeffrey Ubben, founder and managing partner of ValueAct Capital Partners, L.P., an investment partnership that owns 22 percent of the company's Class A common shares, has been elected chairman.
Arthur Martinez, director and former chairman and chief executive of Sears, Roebuck and Co., has been named lead director.
The developments came as the Securities and Exchange Commission filed a lawsuit seeking to ban Stewart from being a director of a public company -- including her own -- and limit her activities as an officer of a public company.
Troubled times
Stewart's indictment and her diminished role in her multimedia empire marks a dramatic turn of events for the company, which has been reeling since news broke last June that her name was tied to an insider trading scandal involving the shares of ImClone Systems Inc. Shares in Stewart's company have fallen by 50 percent and earnings have suffered.
Advertising and circulation revenues for Martha Stewart Living magazine have taken a hit. Some of her consumer base appears to have eroded, with company officials acknowledging in a recent conference call that magazine renewal rates have dipped.
Now, analysts expect some advertisers to pull back even more and believe that the indictment could keep retailers from striking new relationships with the company. What's more, readers of her magazine and buyers of her goods might react to the charges by turning away from her brand, says Seth Siegel, co-founder of the Beanstalk Group, a licensing agency.
However, Stewart executives are hoping consumers will behave like Lisa Schroeder, 39, who was at Kmart in Overland Park, Kan. "If I like the stuff, I'm going to buy it anyway," she said.
Kmart sells an exclusive line of home products under the Martha Stewart brand.
Other cases
History has many examples of brands that collapsed in similar situations, as well as others that continued to thrive during crises.
Steven Madden went to prison last year to serve a 41-month sentence for stock fraud and money laundering, but Steve Madden Ltd., is doing well, continuing to report strong sales of its chunky shoes.
But unlike Madden, Stewart has become synonymous with tasteful living for legions of fans. Through television shows and public appearances, she is also the embodiment of its brand.
In an apparent effort to reduce that dependency, Martha Stewart Living recently began testing a magazine, Everyday Food, which does not carry her name.
Laura A. Richardson, an analyst at Adams, Harkness & amp; Hill, said that executives "should be able to maintain a company without Martha." But she said, "They are not very far along in that transition process. They need a turnaround plan."
Prediction
Wendy Liebmann, president of WSL Strategic Retail, a consulting firm, said she expects the publishing side of the business -- which accounts for 60 percent of revenues -- to continue to be most vulnerable to fallout from the indictments, more so than sales of Stewart-branded retail products such as towels and housewares.
Ad pages, a key monitor of a magazine's health, fell 28 percent at Martha Stewart Living magazine in the first quarter compared to the same period last year, according to Media Industry Newsletter.
Television revenues were $6.6 million in the first quarter, compared to $6.7 million in the prior year's quarter.
Kmart said in a statement that Stewart's home furnishings remain "a Kmart customer favorite and continue to sell well overall."
Sears Canada said it hasn't changed plans to launch a line of home products under the Martha Stewart label this fall.
The company has found from surveys that consumer attitudes toward the brand were "positive" despite the scandal, spokesman Vincent Power said.