Martha Stewart Living Omnimedia, Inc. (NYSE:MSO)

CAPS Rating: 1 out of 5

An integrated media and merchandising company devoted to enriching the changing lives of today's women.

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Member Avatar CheerUp (73.41) Submitted: 2/4/2014 4:38:58 AM : Underperform Start Price: $3.87 MSO Score: -1.77

Double digit declines in revs continue unabated. How long til the jailbird is pitching her towels on TV at 3am?

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Member Avatar rknapton (< 20) Submitted: 8/22/2013 4:27:22 PM : Underperform Start Price: $2.51 MSO Score: -59.00

Short. Martha Stewart brand is dwindling. Revenues down annually. Not seeing a bright future with this company.

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Member Avatar FULAWRENCEI (52.86) Submitted: 3/31/2013 9:34:49 AM : Outperform Start Price: $2.64 MSO Score: +42.52

Marthas products are in the largest store Macys. I visit Macys once a month and ask the store clerk how the Martha products are selling and they said that it was doing fantastic in sales. On your spare time take a glance at Macys Dept. store. Martha has 33% of the Home Goods department filled with her products. I couldn't believe all the things that she had her hands in. Good luck ... I can easily see 33% return short term and double long term.

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Member Avatar codyk500 (71.21) Submitted: 3/5/2013 3:54:46 PM : Underperform Start Price: $3.02 MSO Score: -17.32

Question #1: What is this business worth?
Market Cap: 170M
Cash: 49M
Equity-cash: 119M
Shares: 67M
Non cash value per share: $1.80
Cash value per share: $0.73

Question #2: What does $120M imply about valuation?
This business is valued at 10-11x 2014 EBITDA (CapIQ).

Question #3: Who would pay 10-11x for a media business on an LTM EBITDA basis, let alone on a 2 year forward basis?
One answer: the big media acquisitions of the 2005-2007 era. Primedia Outdoor Group (2006 / 10.0x), Primedia Crafts division (2006 / 10.0x), F+W Publications (2005 / 10.0x). Time4/Parenting Magazine (2007 15.5x), Hanley Wood (2005 / 11.8x), Apprise Media (2005, 13.7x).

Question #4: Why is MSO’s 2 year forward multiple trading in line with LTM multiples from the boom years?

To answer going to have to see what makes up this business:
MSO has three revenue producing segments, and one very expensive corporate group:

Segment #1: Publishing
62% of revenues / 2012 Op Income of -$20M (net of impairment charge), pre corporate allocation
In 2012 opex for publishing was reduced but was outpaced by revenue declines ($11M)
“Production, distribution and editorial expenses decreased $6.6 million in 2012 from 2011 primarily due to a decline in paper, printing and distribution expenses from fewer magazine pages produced in Martha Stewart Living and lower pricing. The decrease in production, distribution and editorial expenses also reflected reduced art and editorial compensation and story costs to support the print and digital magazines. These decreases were partially offset by an increase in headcount and higher project costs to support the website and other digital initiatives, as well as an increase in paper, printing and distribution expenses from an increase in magazine pages produced in Martha Stewart Weddings and related special interest publications. Selling and promotion expenses decreased $1.2 million in 2012 from 2011 due to lower subscriber acquisition costs, which included a significant reduction of our direct mail campaigns.”

Well at least they are beefing up their digital presence right? After an $11M decline in print ad revenue, digital is one of the last hopes…
“Digital advertising revenue decreased $2.6 million in 2012 from 2011 due to fewer advertising units sold and lower rates.”
“We saw a 15% decline in average monthly page views to 80.9 million, down from 94.9 million in 2011.” – this despite the investment in the new web platform
“We have an advertising-revenue-based website which is dependent on a large consumer audience and resulting page views. Failure to achieve growth could adversely affect our brand and business prospects.”

“While we expect to see significant savings in editorial, production and distribution costs as a result of the Publishing Restructuring, we will have offsetting increased costs due to the increased production of digital content. Ultimately the success of this strategy will depend on our ability to monetize this digital content effectively.” Translation – cost cutting ain’t going to do it for us!

Furthermore, they shut down one of their magazines entirely, Whole Living, and essentially eliminated another Everyday Food (former rate base of 1M)

Segment #2: Broadcasting
9% of revenues
2012 ended live audience recordings
Reduced XM radio presence from 70 to 10 hours
Ended The Martha Stewart Show after 7 seasons on Hallmark (although they own the content)
Now on PBS, weekly half hour shows – MS Cooking School

Good news is that this segment actually made money from all this cutting. $2.3M in operating income on $17.5M of revenues.

Segment #3
Merchandising:29% of revenues / Op Income of $39M

Two components to this, retailing agreements and manufacturing agreements:
Three big retail agreements:
Home Depot (2010) Agreement to 2016
Macy’s (2007) – 650 stores
JC Penney (2011) – $9M of revenues for design fees, under legal dispute

Manufacturing agreements:
MS Crafts (2007 / Michaels stores), MS Pets (2010 / Petsmart stores), MS Home Office (2011 / Avery), MS Homes (2005 / KB Homes),
Emerilware (2000 / HSN), Emeril’s Original (2000 B&G Foods), Emeril’s Coffee (2007), Emeril’s Steaks (2010), Emeril by Snapware (2012)
One thing to note on the manufacturing front, the only new roll out this year was Emeril by Snapware.

The merchandising segment looks pretty solid. Two well-known brands. $39M in earnings. Why not shut down the publishing and broadcasting and just focus on riding out the brand value? Beyond this being less fun for Ms. Stewart, the numbers look bleaker when you take the corporate expense. The G&A is $31M. Now the argument could be made that splitting this business up, shutting down almost everything but the brand licensing would increase its earnings right away. Applying merchandising % merchandising (30%) to the corporate G&A, we get 10M. About $30M of earnings for merchandising. Then we’d have a sub 5x business on a solid brand.

But that I feel is unlikely to happen, because what would the controller of the company have to do with her time? It would be admitting defeat for someone who has already felt that sting. Furthermore, the brand and its ability to sell at retail levels is very much tied into the media/content surrounding it. As Martha and Emeril get older they will become less relevant to new generations of shoppers without constant reminders via the media channel.

The prediction for this CAPS page is that this business is not going to show robust earnings anytime soon, and in the meanwhile, it will lag the index.

A few other tidbits:
They don’t have a CEO
Martha Stewart owns 87% of voting power and can pick all but 2 of the board members
There is a raging legal feud between JC Penney and Macy’s (JC Penney is an investor and has two board seats)
One man can cause a lot of harm to the company just by retiring: “the continued value of these assets could be materially adversely affected if Mr. Lagasse were to lose popularity with the public or be unable to participate in our business, forcing us potentially to write-down a significant amount of the value we paid for these assets.”
One woman can cause a lot of harm to the company:
Postage rates increased 2% in 2012, 2.5% in Feb 2013
Employees down from 582 to 397 (between 11 and 12 10K's)
Digital editions are currently 4% of all circulation
New York headquarter, lease doesn’t expire till between 2015/2018. $12.3M in rent each year.

And just for fun, here is the board
Charlotte Beers 76 (Under Secretary for Public Diplomacy and Public Affairs, chairman of Walter Thompson (ad agency) through 2001)
Arlen Kantarian, 59 (CEO of USTA)
Frederic Fekkai – Martha Stewart’s hairdresser
Michael Kramer – JC Penney appointee, JC Penney COO
Daniel Walker – JC Penney chief talent officer
Margaret Smyth – Former VP/CFO of Hamilton Sundstrand (Aircraft systems)
William Roskin, 69 former Viacom advisor
And…Martha Stewart

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Member Avatar johnnylatte (< 20) Submitted: 10/1/2012 12:45:30 AM : Outperform Start Price: $3.08 MSO Score: +7.49

Martha is finally the face of her organization again. She has put together a winning team this time around. She is dotting her i's and crossing her t's.

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Member Avatar janegenova (< 20) Submitted: 2/11/2012 12:27:12 PM : Underperform Start Price: $4.48 MSO Score: +47.60

Bad moves.

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Member Avatar withoutlimits (84.50) Submitted: 9/17/2010 3:23:46 PM : Underperform Start Price: $4.46 MSO Score: +77.37

Still overpriced....but I love ya, Martha!

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Member Avatar saltville (< 20) Submitted: 12/14/2009 7:20:21 PM : Underperform Start Price: $4.84 MSO Score: +86.82

It seems no matter whom she aligns herself with these days she can't catch a break. The economy is a lot to blame and I do think she will stay in the pink herself. Her company just seems to not be moving. I would love to buy the stock believing it will go back up soon but it is still fluctuating to much. I will if it ever stabilizes. Her magazines like the new paper business is not working.To many variables.

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Member Avatar rrmiller2 (< 20) Submitted: 12/10/2009 12:06:08 PM : Outperform Start Price: $4.90 MSO Score: -88.88

Risky stock as it depends on one person. However, their deal with Home Depot should help. HD should prove a better deal than Kmart.

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Member Avatar silvrscrpt (97.97) Submitted: 10/14/2009 5:06:03 PM : Outperform Start Price: $5.88 MSO Score: -107.61

With the economy down people are starting to entertain more at home. That's why companies like Whole Foods and Time Warner are doing well right now. The same goes for Martha Stewart. If people are going to eat and party at home, they want to do it right, so like it or not, most of them need the services (magazines, books, tv, etc.) that MSO has to offer. I've already tripled my money with her and I've no intention of getting out now.

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Member Avatar Devildoc69 (< 20) Submitted: 9/16/2009 1:22:33 PM : Outperform Start Price: $7.90 MSO Score: -130.82

Buy now or regret it!

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Member Avatar sifeaf (< 20) Submitted: 8/29/2009 5:45:37 AM : Outperform Start Price: $2.72 MSO Score: -18.77

gut feeling it will out perform

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Member Avatar AAAAmanda (54.09) Submitted: 8/19/2009 5:01:48 AM : Outperform Start Price: $3.92 MSO Score: -90.01

Shoot, the stock is cheaper than the magazine. Voyerism will always be in style.

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Member Avatar PlanToWin (22.45) Submitted: 10/18/2008 4:08:06 AM : Underperform Start Price: $6.01 MSO Score: +140.49

Two CEOs? What a mess!

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Member Avatar dkitter (< 20) Submitted: 8/21/2008 11:44:28 PM : Outperform Start Price: $8.01 MSO Score: -104.50

Martha is back.

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Member Avatar lainiiie2 (< 20) Submitted: 7/30/2008 3:54:01 PM : Outperform Start Price: $7.40 MSO Score: -103.98

promote women not martha stewart

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Member Avatar mstoneassoc (< 20) Submitted: 7/25/2008 1:52:36 AM : Outperform Start Price: $7.31 MSO Score: -102.74

Get in and get out.

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Member Avatar johnwick (57.07) Submitted: 6/21/2008 10:22:42 AM : Underperform Start Price: $7.30 MSO Score: +94.88

The arrangement between Kmart and MSLO -- which goes back to 1997 -- has largely been a one-way street. Kmart signed the contract when it was in bankruptcy and, to put it charitably, the retailer was not in a strong position to dictate terms.

So Kmart agreed to pay a minimum amount in royalties to MSLO: $40.4 million in the year ending Jan. 31, 2003, and a whopping $65 million in the year that ended this January.

During that time, Kmart's situation has not improved: It merged in 2005 with Sears Holdings after closing stores and watching sales decline.

For every year between 2003 and 2007, Kmart didn't sell enough Martha Stewart Everyday products to meet the minimum royalty promised to MSLO. And so those payments are about to plummet: Unless Kmart has the turnaround year of the century and Martha's products fly off the shelf, it won't be required to pay MSLO more than $20 million in 2009. That's $45 million less than this year, a drop that will all but eviscerate profits in the company's merchandising division.

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Member Avatar CWILLHUNT63 (< 20) Submitted: 6/20/2008 9:53:20 PM : Underperform Start Price: $7.30 MSO Score: +94.88

this stock seems to bouce back the company is stedly expanding few setbacks

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Member Avatar zakcmac (97.70) Submitted: 6/19/2008 12:27:12 AM : Outperform Start Price: $7.66 MSO Score: -96.17

With the economy where it is at, and the way people are hardwired in the brain. Consumers are not going to give up their spending habits. They are going to use more credit (bad) or they are going to go cheap. Martha is all about nice looking stuff on the cheap. Look at her decision to go with Kmart. Nice looking but cheap.

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