NEW YORK—On May 6, Sotheby’s posted a first-quarter net loss of $2.2million, or 3 cents a share, a 94 percent improvement over the year-ago net loss of $34.5million, or 53 cents a share. Sotheby’s officials noted that because of the seasonal nature of the art market—with the major spring and fall auctions held in the second and fourth quarters, respectively—auction sales in the first quarter have historically represented only 7 percent to 15 percent of the annual total for auction sales, and the first quarter is typically a loss period for the company.
First-quarter revenues were up 87 percent, to $101.9million, largely because of a $45million, or 117 percent, increase in auction commission revenues from the year-ago period, Sotheby’s reported. The increase in commission revenue was in large part due to net auction sale results in London in February (ANL, 2/23/10), where total volume was $208.1million, up more than two-fold from the previous February. Sotheby’s executives noted that despite the significant increase in sale volume, operating expenses declined by $16.2million, or 15 percent, in part because of cost-reduction initiatives implemented in 2009, and, to a larger degree, because of the “absence of certain expenses in 2010 that were incurred in 2009.” After the art market experienced a sharp downturn in late 2008, Sotheby’s all but eliminated the use of costly guarantees made during the height of the art market boom, which ultimately resulted in significant losses for the house (ANL, 3/17/09).
Sotheby’s CEO William Ruprecht said that the “renewed art market momentum that began last autumn continued into the first quarter … we continue to stay focused on auction commission margins, expense control and improved operating results.” He added that another contributing factor in the first-quarter results was “our continued commitment to private sales, with private sale commissions up 79 percent in the first quarter.” Many art experts have told ARTnewsletter that private sales rose considerably during the art market’s recent downturn, as cautious sellers opted not to risk the failure of a big-ticket item in a public sale.
Equity analyst Rommel Dionisio, who covers Sotheby’s for Wedbush, issued a report on May 7 reiterating his earlier “outperform” rating and setting a 12-month target price for the stock of $38 per share. As ARTnewsletter went to press, Sotheby’s shares were trading at $33.34 on the New York Stock Exchange, having risen steadily from about $32 a share to $36 a share earlier in the week.
“With clearly rebounding momentum in the global art market, we believe shares should continue moving upward as such recovery in the art market becomes more and more apparent,” Dionisio wrote. He also noted the house’s “impressive progress” at controlling expenses and the results at its recent Impressionist and modern sales (see page 3), and took a bright outlook for the contemporary sales scheduled for May 12–13: “Upcoming major auctions further indicate supply has rapidly returned to the market,” he concluded.