Remodeling Martha (Fortune 2005)

Editor's note: Every Sunday, Fortune publishes a story fromour magazine archives. This week we turn to a 2005 story about Martha Stewart trying to stage a comeback, after the business tycoon served time following charges of insider trading. It has been a bumpy road since, butStewart has proven to be a survivor.Last week, the domestic diva was named non-executive chairman of the media and merchandise company she created, Martha Stewart Living Omnimedia. Stewart had returned to the board last year at the end of a five-year legal ban that prohibited her from serving as a board member or as an executive of a public company. Now back in the helm of the boardroom, she will help set the direction of the business at a time when her brand is under pressure. Martha Stewart Living reported narrower losses during the first quarter. And while Stewart's daily talk show on the Hallmark Channel was recently dropped, it has been picked up by PBS and will air in the Fall. Can Stewart turn things around?

The inside story of how the unsinkable Ms.Stewartstaged her comeback--transforming her board, remaking public opinion, invading prime time. Now the hard part: making it last.

By Patricia Sellers, Reporter Associate Eugenia Levenson

IFMARTHAStewart's troubles have dimmed her self-confidence, you'd never know it from talking with her. When she was offered a starring role in The Apprentice, she tells me one afternoon, "I thought I was replacing The Donald. It was even discussed that I would be firing The Donald on the first show." It's a cold, damp October day, andStewartis holding forth in her tidy, glass-walled office on the 24th floor of her company's Midtown Manhattan headquarters. Her prime-time NBC TV show, The Apprentice:MarthaStewart, has launched with lackluster ratings, but the blame, as she sees it, lies not with her performance or her personal brand being a tad overexposed but with the overexposure of The Apprentice itself. Not until shortly before she "got home," she says--from a five-month federal prison stay--did she learn that Trump's show would remain on the air too. And when did Trump learn that she intended to bump him off his own show? "I don't think he ever knew," she says.

Stewartbetrays no disappointment in her show's numbers. In fact, she describes it as a triumph. "We're getting six to seven million viewers a night," she says. "Guess what? That's damn good. People walk away from the show thinking, 'What a nice company that is,' and 'Boy, do they do good things.'" Would a runaway hit have been better? Of course. But in her view, she is getting prime-time product placement--the product, of course, isMartha--just when she needs it most. Her face is on billboards and buses across the country. It's a tremendous promotional platform, more valuable than millions in ad dollars could buy.

And so the redemption ofMarthaStewart--media mogul, multimedia superstar--continues. Maybe you loathe her. Maybe you love her. Either way, it's hard not to be amazed by her dramatic reversal of fortune. A year ago she was incarcerated at Alderson Federal Prison Camp in the hills of West Virginia, for lying to government investigators about a suspicious stock trade. "I was in the wrong place at the wrong time,"Stewartsays. "I fell in a hole." Today, at 64, she is ubiquitous. Her flagship magazine,MarthaStewartLiving, has seen ad pages jump 48%; her new advice book, TheMarthaRules, is on the New York Times bestseller list. She's landed a syndicated daytime TV show, a $30 million satellite radio deal with Sirius, a DVD deal with Warner Home Video, a music deal with Sony BMG, even a partnership with KB Home to buildMarthaStewart--branded residential communities. After plunging from a peak of $295.6 million in 2001 to $187.4 million last year, revenues at her company,MarthaStewartLiving Omnimedia (MSLO), are rebounding to an expected $208 million this year; after the company's seven consecutive quarters of losses, Wall Street projects a return to profitability in 2006.

None of it happened by chance. As I learned in the course of a year's reporting and multiple interviews withStewart, she plotted this comeback with her signature painstaking precision--practically from the day she was convicted. While she benefited from America's well-known fascination with celebrity resuscitations, her return may be the strongest evidence yet of her strategic sense and business acumen.Stewarthas installed first-rate management at MSLO: CEO Susan Lyne, the former top programmer at ABC, and chairman Charles Koppelman, the onetime boss of EMI Records North America. (Don't let his role asStewart's smiling, cigar-chomping sidekick on The Apprentice fool you; he's a power in the company.)Stewart's operatic fall and thunderous return speak volumes about the resiliency of this entrepreneur who was America's first self-made female billionaire. She's No. 21 on our2005Most Powerful Women list, and she earned it the hard way.

Make no mistake: Serious risks persist forStewartand her company. She is a convicted felon and, her ongoing appeal and protestations of victimhood notwithstanding, was put away by a jury of four men and eight women who voted guilty on four counts. A Securities and Exchange Commission insider-trading investigation is pending. With her history of going from darling to devil to darling in the public eye, the mood could turn against her once more--and may already be souring. Her company's stock, which doubled during her prison stay, is down 47% since her release in March, reducing the value ofStewart's personal holdings from $1 billion to just over $500 million. Press accounts, once brutal and then ebullient, have turned chilly again. Is she overexposed? Perhaps, but she knows only one way to operate: full speed ahead. She never had a plan B for her comeback. And arguably, she doesn't need one. "I have learned,"Stewartsays, "that I really cannot be destroyed."

In July 2004 I metMarthaStewartfor dinner at Rebecca's, one of her favorite restaurants in Greenwich, Conn. It was just three days after she had been sentenced to five months in prison plus five months of house arrest--a fate she'd hoped to avoid even after her conviction. Advertisers were fleeing her flagship magazine, revenues were tanking companywide, profits were gone, and MSLO stock was trading at $11 a share. (Four years earlier it had been as high as $34). She'd been ridiculed on the front page of the New York Post two days before in a cut-and-paste picture of her in prison stripes.

Given all that,Stewartwas remarkably composed, dining on grilled tuna, enjoying a glass of white wine. "My daughter told me that all this makes me more interesting," she joked. "Great, if only I didn't have to go through it." She was struggling with whether to go to prison then or hold out through the legal appeal process. She called it "my conundrum." When I asked, perhaps foolishly, if she was at all curious about or intrigued by the idea of going to jail, her reply was classicMartha, tough and no-nonsense, delivered with a touch of hauteur: "Curious?! Intrigued?! No!"

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Remodeling Martha (Fortune 2005)