Despite the continued global art market boom, Sotheby’s reported second-quarter and half-year (through June) earnings yesterday, showing just a slight gain in profit, citing fierce competition for high-end consignments and an uptick in total expenses.
For the second quarter — typically a major contributor to earnings since it includes results from the May New York auctions — the house reported revenue of $304.9 million, roughly even with the $304 million reported one year ago. Net income was up, to $91.7 million, or $1.33 a share, from $85.4 million ($1.24 a share). This was largely due, however, to a $6.8-million income tax benefit realized in this year’s second quarter.
The house said auction commission revenues were “positively impacted by the buyer’s premium rate increase that took effect on March 15 and contributed an additional $19.8 million of second-quarter revenue.”
In terms of the areas the company is focusing on, CEO Bill Ruprecht cited the importance of new buyers from China and the Middle East as well as upgrades to the auction house’s digital platform. “We believe these will better serve our clients and enhance the long-term value of the franchise,” said Ruprecht in a conference call with analysts and investors following the earnings release yesterday afternoon.
Sotheby’s continues to invest in China and emerging markets and “expects those investments to greatly benefit future results as interest from new markets continues to grow.” Ruprecht noted that 22 percent of first time buyers at the house’s worldwide spring sales were from Asia. Five years ago just 21 percent of Sotheby’s sold lots were purchased by buyers from new markets. Today that figure has nearly doubled, to 39 percent — well over a third.
Sotheby’s also announced that it will launch private selling exhibitions in London this autumn, under its existing “S|2” label, adding to existing private selling exhibitions in New York and Hong Kong. “Private sales and private selling exhibitions are an increasingly important part of Sotheby’s business as the company leverages experts’ expertise and experience with a low level of associated expenses,” according to the second-quarter earnings report. For instance, in Hong Kong this fall, Sotheby’s will present a selling exhibition of Pop art entitled, “From Warhol, With Love,” which will focus primarily on the his works on paper as an attractive entry point for new collectors.
Rommel Dionisio, a research analyst with Wedbush Securities who follows Sotheby’s, released a report this morning noting that second-quarter results were “in line with our own estimates but a bit shy of consensus forecasts (which proved to be a bit overzealous in light of the recent commission rate increase).” Consensus forecasts for revenue had been $318 million, or about $13 million above what Sotheby’s realized. Said Dionisio: “The impact of the price increase was, as we had anticipated, partially offset by competitive press to win high-value consignments for some of the major spring auctions.”
Ruprecht said as much during the conference call, noting that while the house saw “significant sales growth in Impressionist, modern and contemporary art…We continue to see fierce competition for high-end consignments and as a result, lower auction commission margins.”
Dionisio maintained his “outperform” rating on Sotheby’s stock and a price target of $49, noting “rising levels of global wealth…should continue to fuel increased demand in the art auction market, particularly in the emerging Asian markets.”
This morning Sotheby’s shares were trading around $44.20 on the New York Stock Exchange, down a notch from the close at $44.91 in trading yesterday.