Martha Stewart Empire Warns of Ballooning Losses

Martha Stewart Living Omnimedia yesterday warned that its full year losses would be twice as bad as Wall Street's current estimates, as the insider dealing allegations against the company's founder continue to sully its prospects.

Martha Stewart, who relies on her wholesome image to promote the company's magazines and television shows devoted to domestic topics such as cookery and gardening, has been embroiled in financial scandal for more than a year.

Her company yesterday reported an 86% decline in profits during the second quarter, down from $6.7m (£4.3m) to $931,000.

The company said the slide stemmed in part from the US government's criminal case against Ms Stewart.

It cited higher public relations and legal costs, and said that advertisers were steering clear of the main magazine, Martha Stewart Living. Revenues fell 16% to $65.8m.

The company is trying to shape a possible future without its founder and has launched its first magazine that does not bear her name: Everyday Food. But analysts are beginning to question whether the firm can survive the bad publicity.

Ms Stewart sold shares in the biotechnology firm ImClone a day before an announcement that a crucial drug would not be reviewed for approval by regulators in the US. She was charged in June with obstruction of justice and securities fraud.

"We believe the Martha Stewart Living core brand will continue to be under pressure until resolution of Martha Stewart's personal legal situation," said the company's chief executive, Sharon Patrick.

Ms Stewart, who stepped down as chief executive in June, will go to trial in January.

The merchandising side of the business, which sells a range of everyday items such as towels and garden furniture, has been hurt for different reasons. The retailer Kmart, a leading distributor of the products, has been closing stores after being forced into bankruptcy last year.