Cautious optimism in Martha's forecast

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Martha Stewart Living Omnimedia is keeping a close eye on recently sluggish economic momentum in the U.S., which is keeping visibility low and the firm's financial outlook for the year unclear, management said Tuesday.

"We'll keep a watchful eye on the economy," president and CEO Susan Lyne told analysts in an earnings conference call, adding that "we all have to be mindful that there will be challenges." However, she also emphasized that pretty much all of the company's business lines have been doing well and that 2008 should bring solid results.

"Given the uncertain economic climate, our ability to predict into 2008 is limited, but we believe the business is fundamentally healthy," CFO Howard Hochhauser said.

Management also pointed to increased revenue diversity as a key factor that should help the company in a tough economy or potential recession.

Lyne said the firm remains committed to a deal with homebuilder KB Home — under which the two set up new living communities — despite the tough U.S. housing market, given that the business has been doing well for the companies.

For now, Martha Stewart Living projects full-year 2008 revenue of about $300 million, down from $327.9 million in 2007. However, full-year operating income will be in the range of $9.5 million-$14.5 million, compared with $7.7 million last year. This guidance excludes results from two new acquisitions unveiled Tuesday, including the Emeril Lagasse business.

The company didn't detail how it will boost its profitability this year, but executives in their call made reference to recent declines in compensation costs.

MSLO said its fourth-quarter profit increase more than doubled from $16.6 million a year ago to $33.4 million. Revenue jumped 22% year-over-year to $118.5 million, helped by higher royalties from the company's merchandising deal with retailer Kmart.
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