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Sotheby’s: Accent on Quality Yields ‘Best-Ever’ Totals in ’07

In reporting its fourth-quarter and full-year results for 2007, Sotheby’s called them “the best ever.”

NEW YORK—In reporting its fourth-quarter and full-year results for 2007, Sotheby’s called them “the best ever.” The auction house attributes the rise largely to its focus on quality before quantity. Contemporary art became Sotheby’s largest sale category last year, with auction sales of $1.34 billion—a 107 percent increase from the prior year.

Chief executive officer Bill Ruprecht points out that Sotheby’s sold the most expensive artwork of the year—Mark Rothko’s White Center (Yellow, Pink and Lavender on Rose), 1950—for $72.8 million last May (ANL, 5/29/07, p. 1), as well as “four out of the five top lots of the year, while we strategically reduced lot volume by 42 percent on the low end.”

Top-End Clientele Up 200 Percent

Sotheby’s sold 41 lots for more than $10 million, compared with 20 works over $10 million in 2006. Ruprecht says the number of clients buying at the top end of the business has increased by more than 200 percent, while “geographical diversity” continues to expand. Citing an interesting statistic about global demand, Ruprecht adds, “In 2003 our top buyers—those buying lots for $500,000 and more—came from 36 countries, compared with 58 countries in ’07. ”

For the fourth quarter ending December 2007, Sotheby’s reported net income of $102.4 million, or $1.55 a share—a significant jump from $70.3 million, or $1.09 a share, in 2006—which the house said was largely due to “growth in auction commission revenues.” Meanwhile, fourth-quarter revenues totaled $345.8 million, up 31 percent, or $82.6 million, from the prior year.

George Sutton, a senior research analyst with Craig-Hallum Capital Group, Minneapolis, who covers Sotheby’s, said in a research note that while reported revenue fell short of his firm’s $353 million estimate, the earnings per share result of $1.55 was ahead of the expected $1.50 per share.

Full-year revenues totaled $917.7 million, up 38 percent, or $252.9 million, from 2006, while net income for the year was $213.1 million—about double the $107 million seen in 2006. However, Sotheby’s says, the strong results were offset by a 30 percent rise in salaries and related costs from “higher incentive compensation.”

Sotheby’s also states that the full-year results were positively impacted by a “one-time benefit of $20 million,” stemming from an insurance policy of the late Robert Noortman, a Dutch Old Master dealer whose gallery Sotheby’s acquired in June 2006 (ANL, 6/20/06). Noortman died suddenly in early 2007.

Sotheby’s reported sale increases across a broad range of categories: Impressionist and modern art sales rose to $1.16 billion, up 24 percent; Russian paintings and works of art brought $190.9 million, up 25 percent; sales in Asia totaled $400.7 million, up 41 percent; and total sales of contemporary Asian art, one of the fastest rising sectors of the art market in recent years, made $140 million, up 99 percent.

Year-to-date sales have been strong, with Impressionist and modern art sales at Sotheby’s London last month hitting a record $285 million, up 20 percent (ANL, 2/19/08).

Despite record results recorded by Sotheby’s and other art venues for the past year, numerous analysts and observers of the art market continue cautious in their profit outlook for 2008; several express concern that economic weakness around the globe could depress the demand for art. According to Sutton, the first quarter “has started a bit mixed, with Christie’s having a modestly disappointing contemporary sale earlier this month. . . . Fortunately, much of the [first-quarter] auctions take place in London, where the weak dollar and closer geographically to the new wealth markets help fuel a better auction dynamic.”

Shares of Sotheby’s initially fell about 5 percent in the day following its earnings report, to $32.55. However by the end of the day, shares were up 94 cents or 2.8 percent, closing at $35.11 in trading on the New York Stock Exchange.

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