Iconic media and retail company Martha Stewart Living Omnimedia has reported a 42% fall in net profits during the July to September quarter.

The company blamed rising costs and warned of further weakness during the rest of this year.

Though clearly the firm has also been hit by an insider trading scandal involving its founder, the celebrity homemaker Martha Stewart.

The first to desert the firm were its investors which have been shedding Martha Stewart stock for months, shaving off about half their value so far this year.

Investors continued to ditch the stock following the latest financial news, sending it down 6% by midday, amidst growing concerns that the firm's customers have started leavin as well.

"I would assume... that this is more reflection of the Martha scandal-related impact on the company," said Adams Harkness Hill analyst Laura Richardson.

Fraud charges

The scandal surrounds Ms Stewart's decision to sell shares in the pharmaceutical firm ImClone Systems, just one day before US regulators ruled unfavourably on the company's cancer drug, sending its stock market value sharply lower.

Ms Stewart has been accused of insider trading.

Lawyers at the Securities and Exchange Commission (SEC) recently told Ms Stewart they were ready to file civil securities fraud charges against her.

Martha Stewart Living said earnings fell to $2.8m during the quarter ending in September, down from $4.8m a year earlier.

Sales rose 4% while costs rose 11%.