Internet Advertising Growth, Stability in Broadcasting, Solid Performance in New Merchandising Offerings Underscore Brand Strength, Lend Support in Challenging Print Advertising Market
NEW YORK, April 30 /PRNewswire-FirstCall/ -- Martha Stewart Living Omnimedia, Inc. (NYSE: MSO) today announced its results for the first quarter ended March 31, 2009. The Company reported revenue for the first quarter of $50.4 million, reflecting continued growth in Internet advertising revenue, stability in the Broadcasting segment, and new Merchandising initiatives, somewhat offset by a challenging magazine advertising market and expected lower guarantees and sales from Kmart as the relationship winds down.
Charles Koppelman, Executive Chairman and Principal Executive Officer, said, "MSLO's first quarter was consistent with our expectations. We believe our strong brands and broad visibility across media platforms and the nation's retail store shelves are helping the Company hold its own in this recessionary environment. The Company also continues to balance investments in key growth initiatives with careful management of its healthy balance sheet."
Mr. Koppelman added, "In our Media businesses, Publishing continues to feel the impact of the challenging print ad market, but we were encouraged by overall growth in subscriptions to our magazines, which underscores what we see as the inherent value in our print brands and their connection with readers. Our other media platforms are performing solidly as Internet advertising continues to grow and Broadcasting benefits from continued strength in The Martha Stewart Show's core demographic and the addition of Emeril's programming. Our cross-platform or 'omni' programs are also gaining increasing traction and visibility in the marketing community."
Addressing Merchandising performance, Robin Marino, President and Chief Executive Officer of Merchandising, said, "We continue to execute on our diversification strategy for our Merchandising business. First quarter performance was aided by our Emeril business and our program with 1-800-FLOWERS.COM. We continue to expand distribution of our popular crafts line as consumers look for affordable activities to engage in at home. Our Martha Stewart Collection at Macy's continues to perform, and we're excited to learn that we are Macy's largest volume brand in their home business."
First Quarter 2009 Summary
Revenues were $50.4 million in the first quarter of 2009, compared to $67.8 million in the first quarter of 2008. Lower revenues primarily reflect declines in print advertising revenue during a challenging period for the magazine industry, as well as the expected decrease in the minimum royalty guarantees and sales from Kmart compared with a year ago. The Company's Broadcasting and Internet segments performed solidly, as did new Merchandising initiatives.
Operating loss for the first quarter of 2009 was $(15.5) million, compared to $(4.5) million for the first quarter of 2008. Included in the results is an impairment charge of $(7.1) million related to an equity investment. When excluding the impairment charge recorded in the quarter, operating loss was $(8.4) million for the quarter.
Adjusted EBITDA loss for the first quarter of 2009 was $(5.0) million, compared to $(1.2) million in the prior year period. The negative impact to Adjusted EBITDA from revenue declines was partially offset by cost savings in the Publishing and Merchandising segments as well as the reduction of the compensation accrual and lower compensation costs across the businesses.
Net loss per share was $(0.31) for the first quarter of 2009, compared to $(0.08) for the first quarter of 2008. Included in the results is an impairment charge of $(7.1) million or $(0.13) per share for the quarter related to an equity investment. When excluding the impairment charge recorded in the quarter, net loss per share was $(0.18) for the quarter.
First Quarter 2009 Results by Segment
Three Months Ended, March 31
(unaudited, in thousands)
2009 2008
REVENUES
Publishing $28,361 $40,792
Broadcasting 10,514 10,562
Internet 2,622 3,414
Merchandising 8,933 13,066
Total Revenues $50,430 $67,834
ADJUSTED EBITDA
Publishing $(1,363) $2,406
Broadcasting 1,031 522
Internet (1,539) (1,810)
Merchandising 5,499 6,982
Corporate (8,630) (9,344)
Total Adjusted EBITDA $(5,002) $(1,244)
OPERATING (LOSS)/INCOME
Publishing $(1,872) $1,656
Broadcasting 834 175
Internet (2,032) (2,247)
Merchandising (1,776) 6,596
Corporate (10,639) (10,715)
Total Operating Loss $(15,485) $(4,535)
Publishing
Revenues in the first quarter of 2009 were $28.4 million, compared to $40.8 million in the prior year's first quarter, due to lower advertising pages, timing of special issues and softness in newsstand revenue.
Operating loss was $(1.9) million for the first quarter of 2009, compared to operating income of $1.7 million in the first quarter of 2008.
Adjusted EBITDA loss was $(1.4) million in the first quarter of 2009, compared to adjusted EBITDA of $2.4 million in the prior year's quarter. The decreases in advertising and circulation revenues were partially offset by savings in production and consumer marketing costs, as well as lower compensation costs and the reduction of the compensation accrual.
Highlights
- Subscribers increased in the quarter across all of our titles.
- Martha Stewart's Encyclopedia of Crafts debuted at #2 on The New York Times Best Seller List. It has also appeared on the best-seller lists in The Wall Street Journal and Publishers Weekly.
- Emeril Lagasse's new book, Emeril at the Grill: A Cookbook for All Seasons, hit bookstores nationwide on April 28th.
Broadcasting
Revenues in the first quarter of 2009 were $10.5 million, compared to $10.6 million in the first quarter of 2008.
Operating income was $0.8 million for the first quarter of 2009, compared to operating income of $0.2 million in the first quarter of 2008.
Adjusted EBITDA was $1.0 million for the first quarter of 2009, up from $0.5 million in the prior year's first quarter due to the addition of Emeril programming and the reduction of the compensation accrual.
Highlights
- The Martha Stewart Show continues to resonate with its core demographic of women ages 25 to 49.
- Fine Living Network has renewed Whatever, Martha!, the critically-acclaimed series featuring co-hosts Alexis Stewart and Jennifer Koppelman Hutt, for a second season.
- Production for the second season of Emeril Green on Discovery's Planet Green network is underway.
Internet
Revenues were $2.6 million in the first quarter of 2009, compared to $3.4 million in the first quarter of 2008. Excluding revenue from Martha Stewart Flowers, which was previously recorded in the Internet segment and is now recorded in Merchandising, revenues were up compared to the prior year's quarter.
Operating loss was $(2.0) million in the first quarter of 2009, compared to operating loss of $(2.2) million in the first quarter of 2008.
Adjusted EBITDA loss was $(1.5) million in the first quarter of 2009, compared to $(1.8) million in the prior year's quarter, reflecting the reduction of the compensation accrual.
Highlights
- Digital ad revenue grew 13% compared to the prior year's quarter.
- Page views increased 49% over the prior year's quarter.
- We successfully launched a new pets channel primarily sponsored by Nestle Purina PetCare at www.marthastewart.com/pets.
Merchandising
Revenues were $8.9 million for the first quarter of 2009, as compared to $13.1 million in the prior year's first quarter. As anticipated, the 2009 first quarter results included lower contractual minimum royalty guarantees and sales from Kmart as the relationship winds down. Excluding Kmart revenues in both years, Merchandising revenues increased compared to the prior year's quarter. Results this quarter included our Emeril Lagasse business and Martha Stewart for 1-800-FLOWERS.COM.
Operating loss was $(1.8) million for the first quarter of 2009, compared to operating income of $6.6 million in the first quarter of 2008. The decline reflects an impairment charge of $(7.1) million related to an equity investment.
Adjusted EBITDA was $5.5 million for the first quarter of 2009, compared to $7.0 million in the prior year's first quarter, reflecting lower compensation costs, the reduction of the compensation accrual and a continued focus on cost management.
Highlights
- The Martha Stewart Collection continues to resonate with consumers at Macy's. Some of our top-selling categories this quarter were gadgets, cookware and bakeware.
- The Martha Stewart Collection continues to perform well for Macy's. Some of our top-selling categories this quarter were gadgets, cookware and bakeware.
- Martha Stewart Crafts has continued to benefit from expanded distribution and integrated marketing initiatives.
- During the quarter, we signed a new licensing agreement with The Hain Celestial Group to develop Martha Stewart Clean, a line of natural home cleaning products.
- Emeril Lagasse's branded coffee line with Timothy's, his line of cookware with All-Clad, and food products with B&G contributed to the quarter.
Corporate
Total Corporate expenses were $(10.6) million in the first quarter of 2009, compared to $(10.7) million in the prior year's quarter. Adjusted EBITDA loss was $(8.6) million in the first quarter of 2009, compared to $(9.3) million in the prior year's quarter. The decrease in expenses in the quarter was largely due to the reduction of the compensation accrual and lower compensation costs, partially offset by an increase in severance and facility-related charges.
The Company will host a conference call with analysts and investors on April 30th at 11:00 a.m. ET that will be broadcast live over the Internet at www.marthastewart.com/ir.
Use of Non-GAAP Financial Information
In addition to using net income to assess the organization's overall financial health, Company management uses net income before interest, taxes, depreciation, amortization non-cash equity compensation and impairment charges ("adjusted EBITDA"), a non-GAAP financial measure, to evaluate the performance of our businesses on a real-time basis. Adjusted EBITDA is considered an important indicator of operational strength, is a direct component of the Company's annual compensation program, and is a significant factor in helping our management determine how to allocate resources and capital. Adjusted EBITDA is used in addition to and in conjunction with results presented in accordance with GAAP. Management considers adjusted EBITDA to be a critical measure of operational health because it captures all of the revenue and ongoing operating expenses of our businesses without the influence of (i) interest charges, which result from our capital structure, not our ongoing business efforts, (ii) taxes, which relate to the overall organizational financial return, not that of any one business, (iii) the capital expenditure costs associated with depreciation and amortization, which are a function of historical decisions on infrastructure and capacity, (iv) the cost of non-cash equity compensation which, as a function of our stock price, can be highly variable, is not necessarily an indicator of current operating performance for any individual business unit, and is amortized over the appropriate period, and (v) non-cash impairment charges, which are impacted by macro-economic conditions and do not necessarily reflect operating performance.
Adjusted EBITDA provides a means to directly evaluate the ability of our business operations to generate returns on a real-time basis. We provide disclosure of adjusted EBITDA because we believe it is useful for investors to have means to assess our performance as we do. While adjusted EBITDA is a customized non-GAAP measure, it also provides a means to analyze value and compare our operating capabilities to those of companies with which we compete, many of which have different compensation plans, depreciation and amortization costs, capital structures and tax burdens. But please note that our non-GAAP results may differ from similar measures used by other companies, even if similar terms are used to identify such measures.
A limitation of adjusted EBITDA is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues for our overall organization. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures. Management also evaluates the cost of capitalized tangible and intangible assets by analyzing returns provided on the capital dollars deployed. A further limitation of adjusted EBITDA is that it does not include stock compensation expense related to our workforce. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income or other measures of financial performance reported in accordance with GAAP.
About Martha Stewart Living Omnimedia, Inc.
Martha Stewart Living Omnimedia, Inc. (MSLO) is a leading provider of original "how-to" information, inspiring and engaging consumers with unique lifestyle content and high-quality products. MSLO is organized into four business segments: Publishing, Broadcasting, Internet, and Merchandising. MSLO is listed on the New York Stock Exchange under the ticker symbol MSO.
Forward-Looking Statements
We have included in this press release certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only our current beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. These statements include estimates of future financial performance, potential opportunities, expected product line expansions and additions, future acceptability of our content and our businesses and other statements that can be identified by terminology such as "may," "will," "should," "could," "expects," "intends," "plans," "anticipates," "believes," "estimates," "potential" or "continue" or the negative of these terms or other comparable terminology. The Company's actual results may differ materially from those projected in these statements, and factors that could cause such differences include: adverse reactions to publicity relating to Martha Stewart or Emeril Lagasse by consumers, advertisers and business partners; further downturns in national and/or local economies; shifts in our business strategies; a loss of the services of Ms. Stewart or Mr. Lagasse; a loss of the services of other key personnel; a further softening of the domestic advertising market; changes in consumer reading, purchasing and/or television viewing patterns; unanticipated increases in paper, postage or printing costs; operational or financial problems at any of our contractual business partners; the receptivity of consumers to our new product introductions; and changes in government regulations affecting the Company's industries.
Certain of these and other factors are discussed in more detail in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, especially under the heading "Risk Factors," which may be accessed through the SEC's World Wide Web site at http://www.sec.gov. The Company is under no obligation to update any forward-looking statements after the date of this release.
Martha Stewart Living Omnimedia, Inc.
Consolidated Statements of Operations
Three Months Ended, March 31,
(unaudited, in thousands, except per share amounts)
2009 2008
REVENUES
Publishing $28,361 $40,792
Broadcasting 10,514 10,562
Internet 2,622 3,414
Merchandising 8,933 13,066
Total revenues 50,430 67,834
OPERATING COSTS AND EXPENSES
Production, distribution and editorial 28,170 36,037
Selling and promotion 14,781 18,714
General and administrative 14,113 16,262
Depreciation and amortization 1,751 1,356
Impairment charge 7,100 -
Total operating costs and expenses 65,915 72,369
OPERATING LOSS (15,485) (4,535)
OTHER (EXPENSE) / INCOME
Interest (expense) / income, net (8) 483
Loss on equity securities (757) -
Loss in equity interest (236) -
Total other (expense) / income (1,001) 483
LOSS BEFORE INCOME TAXES (16,486) (4,052)
Income tax provision (358) (182)
NET LOSS $(16,844) $(4,234)
LOSS PER SHARE - BASIC AND DILUTED
Net Loss $(0.31) $(0.08)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 53,766 52,722
Martha Stewart Living Omnimedia, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)
March 31, December 31,
2009 2008
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $49,744 $50,204
Short-term investments 9,855 9,915
Accounts receivable, net 37,205 52,500
Inventory 6,483 6,053
Deferred television production costs 4,597 4,076
Income taxes receivable 41 40
Other current assets 6,608 3,712
Total current assets 114,533 126,500
PROPERTY, PLANT AND EQUIPMENT, net 13,088 14,422
GOODWILL AND OTHER INTANGIBLE ASSETS, net 93,309 93,312
INVESTMENT IN EQUITY INTEREST, net 5,512 5,749
OTHER NONCURRENT ASSETS 12,109 21,302
Total assets $238,551 $261,285
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $19,920 $27,877
Accrued payroll and related costs 6,181 7,525
Income taxes payable 97 142
Current portion of deferred subscription income 22,686 22,597
Current portion of other deferred revenue 19,554 7,582
Total current liabilities 68,438 65,723
DEFERRED SUBSCRIPTION REVENUE 6,374 6,874
OTHER DEFERRED REVENUE 4,953 13,334
LOAN PAYABLE 18,000 19,500
DEFERRED INCOME TAX LIABILITY 2,197 1,854
OTHER NONCURRENT LIABILITIES 3,179 3,005
Total liabilities 103,141 110,290
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Class A common stock, $0.01 par value,
350,000 shares authorized: 28,151 and
28,204 shares outstanding in 2009 and 2008,
respectively 282 282
Class B common stock, $0.01 par value,
150,000 shares authorized:
26,690 shares outstanding in 2009 and 2008 267 267
Capital in excess of par value 284,641 283,248
Accumulated deficit (148,871) (132,027)
Accumulated other comprehensive loss (134) -
136,185 151,770
Less class A treasury stock - 59 shares at cost (775) (775)
Total shareholders' equity 135,410 150,995
Total liabilities and shareholders' equity $238,551 $261,285
Martha Stewart Living Omnimedia, Inc.
Supplemental Disclosures Regarding Non-GAAP Financial Information
Three Months Ended March 31,
(unaudited, in thousands)
The following table presents segment and consolidated financial
information, including a reconciliation of operating income/(loss), a GAAP
measure, and adjusted EBITDA, a non-GAAP measure. In order to reconcile
adjusted EBITDA to operating income, depreciation and amortization,
non-cash equity compensation, and non-cash impairment charges are added
back to operating income/(loss).
2009 2008
ADJUSTED EBITDA
Publishing $(1,363) $2,406
Broadcasting 1,031 522
Internet (1,539) (1,810)
Merchandising 5,499 6,982
Corporate (8,630) (9,344)
Adjusted EBITDA (5,002) (1,244)
NON-CASH EQUITY COMPENSATION
Publishing 435 651
Broadcasting 128 238
Internet 41 59
Merchandising 157 362
Corporate 871 625
Total Non-Cash Equity Compensation 1,632 1,935
DEPRECIATION AND AMORTIZATION
Publishing 74 99
Broadcasting 69 109
Internet 452 378
Merchandising 18 24
Corporate 1,138 746
Total Depreciation and Amortization 1,751 1,356
IMPAIRMENT ON MERCHANDISING EQUITY
INVESTMENT 7,100 -
OPERATING INCOME / (LOSS)
Publishing (1,872) 1,656
Broadcasting 834 175
Internet (2,032) (2,247)
Merchandising (1,776) 6,596
Corporate (10,639) (10,715)
Total Operating Loss (15,485) (4,535)
OTHER (EXPENSE) / INCOME
Interest (expense) / income, net (8) 483
Loss on equity securities (757) -
Loss in equity interest (236) -
Total other (expense) / income (1,001) 483
LOSS BEFORE INCOME TAXES (16,486) (4,052)
Income tax provision (358) (182)
NET LOSS $(16,844) $(4,234)
