updated 10/27/2005 6:20:11 PM ET 2005-10-27T22:20:11

Martha Stewart Living Omnimedia Inc. said Thursday its third-quarter loss widened from a year ago, as charges associated with its reality prime-time TV show offset a solid rebound in advertising revenue in its publishing division.

The New York-based multimedia company also projected fourth-quarter earnings below Wall Street expectations.

For the three months ended Sept. 30, Martha Stewart Living lost $26.07 million, or 51 cents per share, compared with a loss of $14.97 million, or 30 cents per share, in the year-ago period.

The results included a $10.8 million, or 21 cents per share, non-cash charge related to the launch of “The Apprentice: Martha Stewart,” a reality show in which the company has no economic interest, but which provides brand visibility.

Excluding the charge, the company would have lost 30 cents per share, which was in line with the consensus from analysts polled by Thomson Financial.

Total revenue rose 5.7 percent to $40.85 million from $38.65 million in the year-ago period, helped by robust advertising revenue for its flagship Martha Stewart Living magazine. The revenue figures were in line with Wall Street’s expectations for $41 million.

The company said it expects operating profit before depreciation and amortization to be $11 million, or 22 cents per share, below the 24-cent profit that analysts expected. The company expects operating income to break even.

Despite the recent boost from advertising revenue, Martha Stewart Living has had a mixed performance as it tries to put the legal woes of its namesake founder behind it. In particular, the prime time reality show has performed poorly, and the company is struggling with disappointing ratings from “Martha,” its syndicated TV talk show. In fact, Stewart’s syndicated show will have to give additional commercials to advertisers to cover the shortfall in ratings, CEO Susan Lyne told investors Thursday on its conference call.

Investors had pushed up the company’s stock while Stewart was serving prison time for lying about a stock sale. Since Stewart was released from prison, the stock has plummeted 31 percent, dropping more dramatically since the TV shows aired in mid-September.

“I am pessimistic because there is so much uncertainty,” said Mason Leith, a publishing analyst at Zacks Investment Research.

Lyne said that the “Martha” TV show is providing a boost to the overall business, citing a 50 percent increase in traffic to the company’s Web site from a year ago, a dramatic increase in online magazine subscription sales and improved sales of Martha Stewart Living Everyday products at Sears Holding Corp.’s Kmart stores since the show’s debut.

The TV shows are part of the company’s strategy to polish Stewart’s image and bolster her visibility. Stewart is also reaching out to new consumers, with plans to develop a new home-improvement reality TV show next year, as well as new books, how-to DVDs and a radio show this fall.

The latest partnership, announced earlier this month, is with KB Home, one of the nation’s largest home builders, which will build a line of new houses inspired by the domestic queen’s three homes in New York and Maine.

Revenue in the company’s publishing division rose 24 percent to $27.6 million from $22.2 million in the year-ago period. Adjusting for Body + Soul magazine, which was acquired in August 2004, revenue increased 18 percent. The revenue growth was driven by higher advertising revenue in Martha Stewart Living and Everyday Food.

Advertising pages in Martha Stewart Living increased 48 percent in the quarter, ahead of its projections for a 35 percent growth. Everyday Food had 21 percent more advertising pages.

The company said it expects strong growth in ad pages and revenue to continue through 2006. Based on current trends, the company now expects fourth-quarter advertising pages in Martha Stewart Living to double year-over-year.

Revenues in the television division in the third quarter were $3.4 million, compared with $2.2 million in the year-ago period. But Lyne said ratings for the first five weeks of “Martha” were “below expectations,” and the company is tweaking the format. Although the company has seen improvements in ratings over the past two weeks, they still remain below the company’s original projections, Lyne said.

Merchandising revenues rose slightly to $8.3 million, up from $8.0 million in the year-ago period. The revenue increase was principally related to payments from its program with Sears Canada. Sales of Martha Stewart Everyday products at Kmart declined in the quarter. However, company officials told analysts that year-to-date sales at stores opened at least a year have fallen 4.9 percent, but since the launch of the “Martha” show, sales of the Everyday product have risen 4.9 percent.

Revenues in the Internet/Direct Commerce unit, which has been pared down to its online flower business, were $1.6 million, compared with $6.2 million in the year-ago period.

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