Martha Stewart Living Omnimedia ( MSO) fans are getting a good look at the harder side of Sears ( SHLD). Last week's stronger-than-expected fourth quarter had Wall Street talking up the Martha Stewart brand. Gains at the publishing arm pushed Martha Stewart shares off their recent lows, though they continue to fetch less than half their year-ago level. There's no shortage of investors willing to "buy the future," as Jefferies & Co. analyst Robert Routh points out, because of Martha Stewart's homemaking pre-eminence. But for all the revival talk, the company's hopes continue to ride on retail sales of Martha Stewart goods. And there, the key lies in wheedling a decent deal out of a notoriously tough negotiator, Sears Chairman Ed Lampert. Lampert controls Sears Holdings through his Greenwich, Conn., hedge fund ESL Investments. Hoffman Estates, Ill.-based Sears pushes Martha wares through a deal with its Kmart unit. That arrangement will continue to put cash in Martha Stewart Living's coffers through 2010. But if Martha Stewart Living is to justify its rich multiple -- even at its depressed levels, the stock fetches some 96 times analysts' forward earnings estimates -- fans say Martha's housewares will need broader distribution. The 1000 or so Sears stores across the nation seem to offer a natural outlet, but the sides haven't reached an agreement that would put Martha's stuff in Sears stores. And that may be easier said than done where the tight-fisted, shareholder value-focused Lampert is concerned. He reportedly wants to cut the terms of Martha Stewart's lucractive Kmart deal in exchange for distribution in the Sears stores. While Martha Stewart would surely like to double the number of stores in which Martha goods are available, the company seems in no rush to change the status quo. But to put it in perspective, Martha Stewart Living's broadcasting revenue -- which includes all TV and radio -- was $11 million during the fourth quarter. Internet and direct commerce revenue accounted for a paltry $4.3 million. By comparison, merchandising accounted for $28 million in revenue -- the bulk of which was driven by the Kmart deal. The only segment that supersedes merchandising is publishing, which despite the strong advertising rebound at MSO has become a slow-growth enterprise. Jefferies' Routh, who rates the stock buy, says management is making strides in encouraging "more convergence and cross selling" among its various operations. But all the Sirius ( SIRI) side deals and the NBC primetime and daytime shows are a drop in the bucket compared to the merchandising potential at the company. In the meantime, MSO says it will focus on deals where its brands carry equity. The expanded KB Home ( KBH) deal seems like a good arrangement because there is no inventory or capital cost to the company. But even if all the Martha branded homes are sold, the venture will only bring in revenue in the $11 million to $15 million range, according to Lyne. Routh at Jefferies sees a new Sears deal lifting the company's fortunes, though he concedes that he doesn't believe anybody has "got a handle" on the situation. His firm hasn't done investment banking for Martha Stewart. Lampert has been mum on the possibility of an expanded arrangement, and Sears didn't comment. One source close to the company said there is "no deal in sight." Asked about negotiations with Sears, CEO Susan Lyne said last week there is "nothing to report there. As we've said before, we have a very strong Kmart contract. If we would be able to strike an agreement with Sears that is good for shareholders, we would do that."