Stewart Leaves Prison Ready to Put Her Media House in Order

NEW YORK â€”  Before being incarcerated last fall, Martha Stewart talked about being out in time to “get things growing againâ€� during the spring planting season.

As the lifestyle entrepreneur left a West Virginia prison early today, her company could only hope that her powers of financial rejuvenation were as keen as her green thumb.

Stewart, 63, left the federal women’s prison in Alderson, W.Va., at 12:30 a.m. after serving a five-month sentence for lying to regulators about a 2001 stock sale. Thirty minutes later, with daughter Alexis at her side, Stewart smiled and waved to news cameras at Greenbrier Valley Airport as she boarded a private jet for the flight home to New York.

“The experience of the last five months ... has been life altering and life affirming,� Stewart said in a statement released on her website. “Someday, I hope to have the chance to talk more about all that has happened.... Right now, as you can imagine, I am thrilled to be returning to my more familiar life.�

Her company, Martha Stewart Living Omnimedia Inc., was hit hard as Stewart endured a trial and criminal conviction last year.

The company lost more than $60 million in 2004 as circulation and ad revenue sank at Stewart’s namesake magazine. It has notified Wall Street that first-quarter 2005 numbers will be poor. None of the five analysts who closely follow Martha Stewart Living recommend buying its stock.

But many investors disagree: Shares have risen 17% this year, despite a flat market overall, and they rose $1.91 on Thursday to $33.95 on the New York Stock Exchange.

Stewart, it seems, retains a devoted core following. And the burst of publicity surrounding her return to her business empire might rekindle interest in her products.

“The company exists because of the charisma of Martha Stewart, and when she comes out she’s going to be even more interesting,� said Claude Singer, senior vice president of Siegel & Gale, a New York-based brand-strategy consulting firm. “She now has a comeback wrinkle to her story.�

Just in case the image of a prison-chastened Stewart proves not to be enough to help sales of her bedding, cookware and furniture, she has inked deals to star in two much-hyped television shows, including a prime-time series fashioned after “The Apprentice.�

Stewart will be under house arrest for five months at her sprawling estate in Bedford, N.Y., an hour’s drive north of Manhattan. An ankle bracelet will keep authorities apprised of her whereabouts. She will be allowed to work away from home for up to 48 hours a week, and there will be no restrictions on her work activities from home.

“I see tremendous opportunity in front of us,� Susan Lyne, new chief executive of Martha Stewart Living Omnimedia, said in a conference call with stock analysts last week.

Lyne conceded, however, that the company had challenges ahead. As Stewart’s legal troubles mounted last year, so did her business woes.

Ad revenue at Martha Stewart Living magazine, which contributes about a third of the company’s sales, plunged 56% last year as fickle advertisers fled. Income from television sank 59% as Stewart’s syndicated show was yanked off the air.

Sales of Stewart-branded products, such as the Martha Stewart Everyday line of home products at Kmart stores, were flat -- making them the company’s only business segment that didn’t suffer a downturn.

Despite the hoopla, analysts said that luring back customers wouldn’t be easy.

“I don’t know how well her PR people have done,� said Dennis McAlpine, an independent media analyst in Scarsdale, N.Y. “They’ve certainly yelled and screamed that everybody loves a comeback. I’m not sure I buy it.�

Stewart’s return itself poses risks. Although she remains the company’s largest shareholder, Stewart must mesh with CEO Lyne. Stewart’s initial successor, longtime lieutenant Sharon Patrick, left the company in November, citing “personal and professional reasons.�

Stewart’s new syndicated daytime TV show is drawing interest, with the company saying licensing fees are coming in stronger than for her old show. But although Stewart will be paid for the “Apprentice� spinoff, her company doesn’t stand to gain any income, and perhaps not even any collateral benefits.

“Donald Trump’s success in ‘The Apprentice’ hasn’t really helped his casino company,� said Ivan Feinseth, research director at New York-based brokerage Matrix USA, noting that Trump’s gambling division filed for bankruptcy protection in November.

Analysts say the “Apprentice� spinoff also runs the risk of reinforcing the icy image of Stewart that emerged during her trial. In court testimony, a former stockbroker’s aide depicted Stewart as a screamer who once threatened to yank her multimillion-dollar investment portfolio away from Merrill Lynch & Co. because she didn’t like the telephone “hold music.�

The best news for shareholders -- including Stewart -- is that the stock has been on a rampage. The shares, which dipped below $9 before her July 16 sentencing, began climbing back after Stewart announced in September that she would begin her prison term before her appeal was decided. The run-up has boosted the value of Stewart’s own holdings to about $1 billion.

Analysts chalk up the stock’s rise to overenthusiastic small investors and speculative trading activity. They say much of the increase can be traced to short sellers -- traders who bet that a stock will decline in value -- who were forced to buy shares to cover their position as the stock pushed higher.

The stock is “still in la la land,� Credit Suisse First Boston analyst William Drewry said in a report last week. He predicts that shares will sink to $7 within a year.

Other analysts say Stewart shouldn’t be underestimated. Her products still sell, and the pending acquisition of Sears, Roebuck & Co. by Kmart Holding Corp. could expand the number of stores carrying her wares.

The success of Stewart and her company may rest in part on the image she projects immediately after her release. Hayes Roth, vice president of worldwide marketing at Landor Associates in New York, said Stewart essentially had a clean slate.

“She now has this defining moment,� he said.