Martha to tighten Mail mix, expand specialty

Staff -- Home Textiles Today, 2/25/2002 12:00:00 AM

NEW YORK —

Closing the books on a record-breaking year for revenues and earnings per share, Martha Stewart Omnimedia (MSO) will drive merchandise sales in 2002 with the launch of a new specialty-tier brand, a more rigorously defined and sharply priced assortment in its up-market Martha By Mail segment, and the expansion of the mass market Martha Stewart Everyday brand in the United States and abroad.

Despite last year's economic downtown and Kmart's woes, the company managed to boost total merchandise sales by 46.1 percent to $35.6 million, with merchandise EBITDA rising 26.2 percent to $30.5 million. Total sales of the Martha Stewart Everyday mass market brand rose 26% to $1.6 billion.

"While it is disappointing that this stellar performance has been diminished by Kmart's entrance into bankruptcy proceedings in January, Martha Stewart Everyday continues to be sold on Kmart's shelves, vendors have been and are shipping, and roto and commercial advertisements are going off on schedule," company president and coo Sharon Patrick told analysts during a conference call last week.

The 2001 merchandise sales boost was largely propelled by the launch of storage and decorating product lines under the Martha Stewart Everyday (MSE) brand at the mass market, as well as new venture in Japan launched last summer, said company chairman and ceo Martha Stewart.

This year, the company plans to boost merchandise revenue by 35 percent and merchandise EBITDA by 10 percent, said cfo Jim Follo.

"These estimates are based on Kmart closing 400 stores — that is the midpoint of several publicly made estimates. To the extent that the closings announced by Kmart differ materially from that, we will adjust our projections," Follo said.

MSE this year will unveil a seasonal line of holiday and craft product to expand sales at the mass market level, Patrick said.

The performance of MSE at Kmart through mid-February has been "encouraging," she added.

"We have seen no decline in MSE sales since the bankruptcy. In fact, retail sales of our products continue to grow — up 22 percent to date year-over-year," Patrick said. "All terms of the contract remain in force on current MSE sales, and we continue to earn full royalties."

MSO also is looking to Japan for increased MSE sales this year. The company formed a partnership there in July 2001 with The Seiyu Ltd., whose 226 Seiyu retail stores carry roughly 1,500 skus from the home and cooking/entertaining lines.

"Bedding is currently our largest category, followed by decorating products and bath accessories," Stewart said.

The company also will expand branded merchandise offerings in the specialty tier with the debut of floor coverings by Shaw Rugs and a new paint palette program, both under the label of Martha Stewart Signature. In 2003, MSO will debut a Martha Stewart Signature furniture collection made by Bernhardt Furniture.

Lagging behind in 2001 was the Internet/Direct commerce sector, which includes the Martha By Mail catalog and marthastewart.com. Although sales in the fourth quarter enjoyed double-digit growth, Internet advertising revenue plunged by nearly 54 percent to undercut performance.

The company is moving to redress the problem, executives said, and has committed to investors that the Internet/Direct segment will not incur any losses after yearend 2003. Earlier this month, the company contracted with a new fulfillment provider and renegotiated its freight rate. In December, MSO hired Shelley Nandkeolyar as executive vp with oversight of e-commerce and catalog operations. Nandkeolyar was previously vp of e-commerce and catalog for Williams-Sonoma.

"We need lower product pricing, lower shipping and handling and wider product selection in a smaller number of deep categories in which we have unparalleled authority," Patrick said.

Stewart added, "We currently have a lot of smaller groupings of what we think are important categories. But we are going to go much deeper into four or five categories, and we think that will help tremendously in the appeal of the catalog for the homemaker."