Thursday, August 06, 2009

Sotheby’s Posts Sobering First-Half Results

NEW YORK—As if Sotheby’s 87 percent drop in profits in the second fiscal quarter, announced Tuesday, wasn’t sobering enough, the firm also got walloped by its archrival Christie’s in the auction sales arena in the first half of 2009, with its $995 million tally falling far behind Christie’s $1.5 billion.

The gap can be largely attributed to Christie’s record-shattering Yves Saint Laurent/Pierre Bergé single-owner extravaganza in Paris in February, which brought a staggering €374,392,500 ($484.4 million). Twelve works sold for over $10 million each at the six-session sale, including Henri Matisse’s 1911 still life Les coucous, tapis bleu et rose, which fetched $46,457,480. It was the most expensive picture ever to sell at auction since Claude Monet’s Bassin aux nympheas (1919) sold at Christie’s London to private consultant Tania Buckrell Pos for a record £40,921,250 ($80,451,178) in June 2008.

Comparisons are also striking in two critical fine art arenas, Impressionist/modern and postwar/contemporary, where Christie’s posted worldwide auction sales of $620.7 million and $192.3 million, respectively, as opposed to Sotheby’s approximate breakdowns of $240 million and $200 million. Again, the one-off YSL sale was a major factor.

Sotheby's CEO William Ruprecht sought a silver lining during a conference call session following the firm’s second-quarter filing, perhaps largely in an effort to make up for recent restructuring and cost-cutting, saying, “Our auction commission margins are up 41 percent, and operating costs are down 39 percent [excluding restructuring charges].” Christie’s has also struck a positive note, with CEO Edward Dolman stating, after the company’s figures were released July 23, that the house is “delighted to have further enhanced our leading global-market share in the first half of 2009 and increased sold-by percentages at all price levels.” But both houses suffered during the financial downturn, compared with the same six-month period a year ago, with Christie’s auction sales (even with YSL) dropping 52 percent from $3.2 billion and Sotheby’s 67 percent from $3 billion. The houses performed similarly in private sales or so-called “private treaty” transactions, which include sales at Christie’s wholly owned gallery subsidiary Haunch of Venison and Sotheby’s Noortman Master Paintings, with Christie’s racking up $199.7 million and Sotheby’s $198.4 million. But while Christie’s private-sale figures were down 34 percent from the same six-month period the previous year, Sotheby’s registered a 46 percent uptick in private transactions for the second fiscal quarter, with $134 million.

That’s about as much comparison as anyone can do, since Christie’s, a privately held company controlled by French multibillionaire François Pinault, remains a closed book in terms of reporting any profit/loss picture. At Sotheby’s, a publicly owned American firm with stringent public financial disclosures, though, the picture is pretty clear.

For the second quarter that ended June 30, Sotheby’s registered net income of $12.2 million. This compares with $95.3 million for the same period last year — hence the 87 percent plunge — but still, it was the first profitable quarter reported by the firm after three consecutive quarters of losses.
For the bigger first-six-month period of 2009, though, Sotheby’s suffered a net loss of $22.3 million, compared with net income of $82.9 million for the same period a year ago. And that’s despite a 28 percent reduction in operating costs.

Ruprecht credited the blitzkrieg cuts in both staff and operations during the teleconference on Tuesday. "We adjusted quickly to the different and difficult environment that suddenly presented itself, and we are very well positioned to capitalize on a market rebound and benefit from improved margins and lower costs,” he said.

Those improved “margins,” relating to how much money the firm makes in its auction-room business, largely refer to the recent absence of super-high-priced lots that often go to auction without any commission charges on the seller's part.

Sotheby’s, like Christie’s, has for the most part stopped its risky strategy of offering financial guarantees to lure high-end property to auction, and with it, the chance to take a bigger cut in star-lot profits. This more conservative posture further reduces the salesroom gambling that led to millions of dollars in losses for both houses when the postwar and contemporary art market tanked last November.

During the teleconference, Ruprecht fielded a question from a financial analyst covering the industry as to whether “we’ve hit the bottom or can things get worse.” He responded, “I think we’ve seen pretty much the bottom of what we’d anticipated in terms of the volume of commerce in our business. … I don’t see it getting any worse than first-half volumes.”

If Sotheby’s sticks to its plan to save $160 million in costs by the end of the year and manages to attract sufficient auction-bound and private property to improve its financial footing, the firm stands a chance to return to profitability.

The stock market reacted unfavorably to Sotheby’s financial report card on Wednesday, with BID (Sotheby’s trading acronym) dropping 51 cents (3.4 percent) to close at $14.48 per share. That compares with a 52-week high of $28.92 per share last August.

Judd Tully is Editor at Large of Art+Auction.
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