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The Comeback That Wasn’t

When Martha Stewart returned from prison, the future looked awfully bright.

Illustration by Vivienne Flesher  

She wore a brown suit hemmed at the knee, a gold necklace, and stiletto heels. As she walked into the soaring white hall with clerestory windows, hundreds of her employees rose from banks of folding chairs, clapping and cheering.

It was the morning of Monday, March 7, 2005. Three days earlier, Martha Stewart had been inmate 55170-054, patron saint of precipitous falls. After news broke in June 2002 that Stewart was being investigated for insider trading, her company stock plummeted; since she owned a majority of the shares, this meant that her own net worth was also devastated. She had been ousted from control of the company that bore her name and seen its very existence threatened. She had been pilloried in the tabloids, humiliated in the courts, and locked up in prison for five months.

She was 63 years old, an age when many people are finalizing plans for their retirement. Instead, returning to the West Chelsea offices of Martha Stewart Living Omnimedia, Stewart looked poised to launch one of the all-time great comebacks in business history. As the theme music from her TV show played, she blew kisses and stepped onto a stage in the middle of the room.

While incarcerated, Stewart had transformed her public image. At the federal women’s camp in Alderson, West Virginia, she had taught yoga, picked wild dandelion greens, and learned to appreciate the simple virtues of vending-machine chicken wings. Now, standing beside a spray of daffodils, Stewart told her employees she had thought of them every day. They were her heroes, she said. She held up the nubby, scallop-edged poncho crocheted by a fellow inmate that she had worn as she flew home from Appalachia in a Dassault Falcon jet. She spoke of the “tremendous privilege” of meeting the women with whom she served time at the facility. “I don’t regret everything,” she said.

Stewart’s company had not left the stagecraft of her resurrection to chance. At her Cantitoe Corners farm in Bedford, a flatbed truck was provided to give the media an optimal vantage to document her return home. And already, Martha Stewart Living Omnimedia seemed well on its way to repairing the destruction of the past three years. An estimable new CEO, Susan Lyne, former president of ABC Entertainment, had been appointed. The company had signed a high-profile deal with producer Mark Burnett to put Stewart back on TV, both in her daily show and in a new, Martha-focused version of The Apprentice. Soon, she would resume her column in ­Martha Stewart Living.

Wall Street had taken note. From the moment the previous September when Stewart announced that she would begin her prison sentence immediately—she wanted to be out in time to oversee the spring planting in Bedford—until shortly before she was released, MSLO stock rose from $11 to $36. Stewart’s personal net worth more than tripled, to over $1 billion, and she was named to the Forbes 400 list for the first time.

And so, as she spoke to her employees that Monday morning, it was possible for Stewart and her team to disregard the recent past and even the near future, when for five months she would wear a monitoring anklet and be confined to house detention for all but 48 hours of the week. “We are, all of us, in this next chapter, going for greatness,” Stewart said, before growing misty.

As part of a settlement with the Securities and Exchange Commission, Stewart later consented to a five-year ban from serving as an officer or director of her company. Next month, that ban comes to an end, and with it, so does the saga of her misbegotten stock trade. ­Stewart will rejoin her board of directors this fall. But the Martha Stewart Living Omnimedia of today bears scant resemblance to the one she imagined six years ago. In fact, the prevailing narrative of Stewart’s post-prison years, according to which she redeemed herself and overcame her tribulations, is largely illusory.

MSLO has been profitable in only one of the past eight years, losing a total of $185 million during the same period. In the fourth quarter of last year, on the verge of violating loan covenants, the company had to renegotiate its debt with Bank of America. Operationally, the company faces significant problems, too. Stewart’s daily television-programming block on the Hallmark Channel has scored such disappointing ratings that it was cut from eight hours to five. The company has struggled to replace the revenue it used to enjoy through its licensing partnership with Kmart, and it has failed altogether to build a commercially significant digital business. Its stock price has languished below $5 for most of the past year (and at press time was $4.07). Last week, a Wall Street analyst slashed his valuation of the company’s assets by 10 percent.