Stewart's company sees 42 percent drop in profits

NEW YORK -- Martha Stewart's multimedia empire reported a sharp drop in quarterly earnings Thursday and its namesake chief executive acknowledged her legal woes are affecting the company.

Martha Stewart Living Omnimedia Inc., which produces magazines, TV shows, and merchandise under Stewart's name, also warned Thursday that fourth-quarter profits will fall well short of Wall Street earnings expectations.

The company faces skittish advertisers, muted merchandising sales and higher corporate expenses related to the federal probe of Stewart's sale of stock in ImClone Systems Inc. last year. The company also acknowledged Martha Stewart Living magazine renewal rates and its signature TV show's ratings are weakening.

In a conference call, Stewart acknowledged that the company has had to "combat a great deal of negative publicity" surrounding her legal woes, which has "overshadowed" the company's business. She declined to comment on the investigation.

Stewart, who has maintained her innocence, last month was notified by the Securities and Exchange Commission that it plans to recommend civil securities fraud charges against her related to her ImClone sale. The Justice Department is investigating whether to file criminal charges.

Federal investigators are probing whether Stewart had insider knowledge when she sold her shares of the biotech company Dec. 27, the day before the Food and Drug Administration announced that it would deny ImClone's application to market a promising cancer drug.

Stewart is a personal friend of ImClone founder and former CEO Sam Waksal, who pleaded guilty last month to fraud charges and perjury. Waksal did not implicate Stewart.

During the three months ended Sept. 30, Stewart's multimedia empire reported a profit of $2.76 million, or 6 cents per share, down 42 percent from $4.77 million, or 10 cents per share, a year earlier.