Did Prison Ruin Martha Stewart?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- Since the mid-1970s, domestic diva Martha Stewart has been an icon of American style. Over the years, Stewart's catering business has blossomed into a hydra-headed business offering everything from cookbooks and magazines to home furnishings, flowers, food, wine and even houses. Building from one success to another, Stewart became a media icon, editor-in-chief of her eponymous Martha Stewart Living magazine and star of an hourlong television show devoted to food, decorating, holidays and other niceties of gracious living.

While rumors that she was temperamental and difficult to work with swirled around Stewart from the beginning, she continued to be viewed by her fans as the consummate authority on all things stylish and genteel. Consequently, when Stewart was charged in 2002 with insider trading and ultimately convicted and jailed, the public was shocked and speculation about the impact of her conviction on her business empire ran rampant.

Even as comedians quipped about Stewart sponge-painting the walls of her prison cell and accessorizing her orange prison jumpsuit, investors wondered whether her business could survive the disgrace of its founder and spokeswoman. Prospective buyers hovered around her Martha Stewart Living Omnimedia corporation, and the editorial board of Martha Stewart Living reportedly wondered whether it would be better for the magazine for Stewart to be quietly removed as its spokesperson.

In 2005, Stewart made a highly publicized and apparently successful comeback. Her company's home furnishings line at K-Mart was expanded, and her company launched a line of housewares with Macy's (M). Stewart returned to daytime television with "The Martha Stewart Show" and came to primetime on "The Apprentice: Martha Stewart." For a while, it appeared as if Stewart and her company had come through her conviction unscathed.

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In hindsight, however, celebrations of Martha Stewart's triumphal return may have been premature. "The Apprentice: Martha Stewart" was cancelled after its first season. Her company's relationship with K-Mart foundered in 2009 when sales of her merchandise fell below expectations. Stewart was quoted as blaming K-Mart's parent company, Sears Holdings (SHLD), for letting the quality of her line deteriorate. However, Sears' representatives shot back that the products were designed and manufactured to her team's specifications and bluntly stated, "we think that Ms. Stewart should accept responsibility for her product."

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