Martha's Endgame

ANTOINE CAU/ABACA
BRAVE FACE: Stewart leaves the courthouse after her sentencing

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The plunge in advertising revenue has dragged Martha Stewart Living into the red for the first time in its five years as a public company. In the first quarter, sales dropped 23%, to $44.5 million, and the company lost $20 million. Winning back advertisers will take more than heartfelt pleas from loyal readers. Advertisers are looking for a reinvention of the brand, says Robert Passikoff, president of the consulting-and-research firm Brand Keys. Inside the pages of the company's magazines, that is already happening. With the September issue, Martha Stewart Living will be redesigned to reduce the emphasis on Stewart's name in the title. The back-page spot once occupied by her essay is now home to the "Cookie of the Month." Patrick has also quietly launched a new magazine, Everyday Food, a digest-size title filled with pared-down recipes. The magazine, which has shed almost all references to Stewart, was the one bright spot in the company's publishing segment, and now has a circulation of 750,000, a 50% jump from a year ago.

Consumers, however, seem to have stood by Stewart. Passikoff explains that, while Stewart's image may have been important in marketing the magazine, it isn't essential to sell a rug or a pie plate. In fact, sales of Martha Stewart brand sheets, towels and dishes through K Mart have risen 6.5% since Stewart's conviction, according to a report by Bear Stearns.

But whatever changes Patrick makes, the results may not surface for a while. Analysts expect 2004 to be another unprofitable year for the company as it slowly rebuilds itself in a new image. It had a perfect one, but she proved to be all too human.