Martha Stewart's Return to Freedom

Martha Stewart's felony conviction for obstructing justice in a stock sale marked one of the most precipitous falls in business and entertainment history, and the headlines of the day proclaimed as much. Another disgraced, egomaniacal chief executive officer bites the dust, right? Turns out, maybe not.

It's amazing what five months in a federal prison will do for a person's reputation. After she shed some pounds and made friends behind bars, the fickle media has cast a kinder light on Stewart in advance of her impending freedom. She'll soon be back in American living rooms as the public face of her company, if not a return to the CEO's chair. But while her personal fortunes have improved, is her up-and-down multimedia empire ready to follow?

Stewart, who last year tearily told ABC News' Barbara Walters that she didn't know why so many Americans seemed to hate her, is poised to walk out of a West Virginia prison early Friday morning, just a day short of a year after her conviction. It's unlikely her return will be a quiet one.

While she was incarcerated, it was announced that Stewart, 63, would return to television in two separate programs, a syndicated daytime show and a primetime spinoff of the popular Donald Trump vehicle, "The Apprentice." The Donald, himself no stranger to shameless self-promotion, has become one of Stewart's most vocal supporters, and the show will be helmed by producer and reality TV guru Mark Burnett. For Stewart, it's a good thing, indeed.

The domestic diva has apparently humbled herself to rake leaves and scrub floors at the Alderson Federal Prison Camp, not-so-ominously known as "Camp Cupcake." And that speaks nothing of the reported 20 pounds she lost on the federally imposed jailhouse diet or the cross-class friendships she forged with fellow inmates. If the American public forgives and forgets, it could be the 1990s all over again as the media ego stroke breathes life back into a once-toxic public image.

"She's looked after herself wonderfully," said Dennis McAlpine, a media and entertainment analyst and head of McAlpine Associates.

Will Improved Image Help Earnings?

The question now facing Wall Street is whether looking after herself will translate into earnings success.

On the surface, the benefits to her company, Martha Stewart Living Omnimedia, have mirrored her image resurrection. The company's stock price has more than tripled since her sentencing in July, pushing Stewart, the owner of 30 million shares, back into Trump's billionaire's club.

"Martha goes to jail and the stock's at $10. While she's away it climbs to $35. Ironically, the stock's best performance was while she was out of commission," said Douglas Arthur, an analyst with Morgan Stanley. "Now people are going to expect there will be a miracle the minute she steps back in, but it might not happen."

The company recently announced less-than-stellar earnings results, and some analysts believe the stock is poised for another plummet. The final quarter of 2004 saw a $7.3 million loss as ad sales for its television unit and Martha Stewart Living magazine, once the company's cash cow, virtually vanished during its namesake's legal wranglings.

Company officials have said they expect ad sales to return with Stewart's re-emergence, but analysts aren't so sure.

"It won't take much to improve on recent ad sales, but they'll still be a long way from the kind of earning power the company had a few years ago," Arthur said.

Home Detention and Gardening

After her release, Stewart will spend an additional five months in home detention, wearing an ankle bracelet that won't hinder the gardening she plans to do around the 153-acre Bedford, N.Y., estate she chose for her confinement. She will be permitted to leave the grounds 48 hours per week for work. But that time away from her gardens won't necessarily translate into gains for the MSLO.

Advertisers that spurned the signature magazine could return in some capacity, but analysts say the market was altered in Stewart's absence. Competing magazines like Real Simple and Better Homes and Gardens have gobbled up ad pages, making it unlikely Martha Stewart Living will return to its prior dominance.

"The competitive landscape has changed since Martha Stewart Living first came out," said McAlpine. "I don't think ad sales will pick up for sure."

A Return to CEO?

As a convicted felon, Stewart is barred from running a publicly held company. An article in last week's Newsweek magazine suggested federal regulators and Stewart's lawyers are in the early stages of discussions that could waive the rule and return Stewart to the role of CEO, possibly in five years or less. Regardless of the outcome of those talks, the company faces immediate pressures that may be immune the media splash surrounding her release.

The television exposure will no doubt reintroduce Stewart to legions of fans, and may even win over some who turned on her. But will the TV exposure do much for the company in the near term?

"My concern is she's going to commit so much time to television, which has never been a big money-maker for the company," said Morgan Stanley's Arthur.

Arthur said the company has no financial stake in the "Apprentice" spinoff and is unlikely to see much profit from the daytime show. Daytime ad rates are considerably lower than those for prime-time programming.

Analysts agree the company, and the stock price, have benefited from the recent turn of events and Stewart's willingness to face her prison term head on. (She opted to begin serving her sentence while her appeal is still pending, instead of holding out for a ruling.) But without a return of advertising dollars, it's difficult to see a return to the soaring profits of the turn of the century.

Shares of Martha Stewart Living Omnimedia took a small hit on Tuesday, dropping Martha Stewart Living shares $1.65, or 4.7 percent, to $33.70 after the publisher and executive vice president, Suzanne Sobel, resigned. Without the return of advertisers, it could mark the beginning of another slide.

"The stock is overpriced. I've been saying that since it was at $12," said McAlpine. "If the advertising doesn't come back and the TV shows don't work, it could go a lot lower than that."