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Stewart's firm plots 'rebirth' from legal woes

What's next for Martha Stewart’s business empire after her widely-publicized legal troubles? By CNBC's Diana Olick.
/ Source: CNBC

What's next for Martha Stewart’s business empire after her widely-publicized legal troubles? From the company's perspective, look no further than the cover of Stewart's signature magazine, "Martha Stewart Living." The spring gardening issue features themes of Spring, renewal and rebirth.

“This is an opportunity for the brand to reinvent itself and reinvigorate itself in a way that it never had before,” said Samantha Ettus, a consultant show specializes in personality-driven brands.

Stewart’s staff has done yeoman's work pushing her domestic diva brand, even while she's been behind bars. She is "ready to get planting, having ordered her seeds and made extensive to-do lists, just as she would have done in any winter," writes her editor-in-chief. She has survived the winter of her discontent, and now it's time to grow again.

"A survivor story in America works," said Ettus. "And this is a survivor story unlike what we have ever seen."

So it's no surprise that television producer Mark Burnett -- creator of the hit show "Survivor" -- is waiting on the outside to produce Stewart's own version of "The Apprentice."  She'll also have a new syndicated show from NBC and appearances on the "Today" show. (MSNBC is a Microsoft-NBC joint venture.)

Some still skittish
But everything is not coming up roses.

"I'm not sure that the advertisers will come back to Martha Stewart Living, the magazine," said media industry analyst Dennis McAlpine. "I'm not sure that the viewers will come back to MS, the syndicated show. And quite honestly, I guess I just don't have the vision of mark Burnett: I can't see how this network show is going to work out."

Stewart will get a talent fee, but Omnimedia has no stake in the project, only in her syndicated show, which needs to win back viewers. At the magazine, ad pages are down 70 percent and revenues down 65 percent. The only thing making money now is her licensing deal with Kmart, soon to marry Sears. Omnimedia's stock may have tripled since she went to jail, but analysts say once she's out, all her plans may not help the stock.

"I think Martha Stewart Living Omnimedia the company will be very much helped by the endeavor," said Gary McDaniel, an analyst at Standard and Poor’s. "Martha Stewart Living Omnimedia the stock, MSO -- I don't think is going to see any benefit from this because it's already been bid up to a point that there's no conceivable way the earnings could materialize  to support the valuation it's at now."

Still, others remind us, the company is flush with cash and no debt. So it can afford to wait a few of these endeavors out, see which seedlings will grow and if indeed Stewart's green thumb will translate to green on the books.

The company is already preparing for a triumphal return of the company founder. Martha Stewart Living CEO Susan Lyne came out swinging Wedneday when she told CNBC about just how good Martha Stewart's magazines are.

"Iwill put our magazines up against any magazines out there,” she said. “I think for first time we'll be able to actually sell the products themselves instead of trying to deal with advertisers reaction to Martha's problems."

And that's been the company’s main problem. Advertising sales in the magazines has always been the biggest part of the Martha Stewart empire.  Advertisers are notoriously skittish around controversy and those ad sales remain far below where they were before the stock sale scandal that landed Stewart in jail.

Stewart is to be released from prison next month and then begin serving five months of house arrest, though she'll be able to work from home. Lyne says there's $140 million or so of cash on hand -- enough, she says, to support the diversification ahead.  In particular, advertiser have shown strong interest interest in Stewart's new daily television show in front of a live studio audience.

"We have had no advertiser push back at all around the TV show,” said Lyne. "In fact, advertisers are expressing enormous interest in it. We will not start selling advertising for a few more weeks, but the interest is very, very strong."

Shares in Martha Stewart Living Omnimedia are down from a recent 52-week high of $36.53 but are well above their low of $8.25 for the past year.