UPDATE 2-Martha Stewart loss widens as ads decline
* Q1 loss $0.18/shr excluding charge, misses estimates
* Loss includes 13 cents/shr charge related to investment
* Shares fall 7.4 percent (Adds CEO comments, updates market activity)
NEW YORK, April 30 (Reuters) - Martha Stewart Living Omnimedia Inc (MSO.N) reported a wider quarterly loss on Thursday because of falling magazine advertising sales and diminishing returns from an alliance with retailer Kmart.
The company's shares fell 7.4 percent after it forecast weak print advertising sales into the second quarter, even though it sees reason for cautious optimism later in the year.
The results come a week after a management shake-up at the company and soon after it reported a new and lucrative three-year contract for founder Martha Stewart.
The publisher reported a first-quarter loss of $16.8 million, or 31 cents a share, compared with a loss of $4.2 million, or 8 cents a share, a year earlier.
The results include a charge of 13 cents per share related to an investment the company made in crafts company Wilton Products Inc in 2007.
Excluding that charge, the company lost 18 cents per share, falling short the average analyst forecast of a loss of 14 cents a share, according to Reuters Estimates.
Revenue fell 26 percent to $50.4 million, below analysts' estimates.
Despite the prospect of a "challenging" ad market in the second quarter, Chairman Charles Koppelman said "there are some green shoots out there" in some ad categories, and that it "looks like there is a little daylight" in its ad forecast.
Other media companies such as USA Today Publisher Gannett Co Inc (GCI.N) and MTV owner Viacom VIAb.N have tiptoed through similar statements, emphasizing that ad sales are still weak but that things might improve later this year.
Last week, Wenda Harris Millard resigned as co-chief executive. The other CEO, Robin Marino, will no longer hold that title, but will oversee the company's merchandising business.
Chairman Charles Koppelman will run the business, while Stewart retains creative control.
Stewart also revealed a new contract that pays her $2 million a year for three years, plus a $3 million retention incentive payment and up to $1.5 million in annual bonus.
The company's shares were down 28 cents at $3.49 in midday trading on the New York Stock Exchange.
(Reporting by Robert MacMillan; editing by John Wallace and Ted Kerr)
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