Sotheby’s Profit Rose in First Quarter on Higher Commissions

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Incoming CEO Of Sotheby's Tad Smith
Incoming CEO Of Sotheby's Tad Smith. Smith has “an ability to understand and serve client needs, and a track record of driving revenue and profit growth,” Sotheby’s lead independent director Domenico De Sole said. Source: Sotheby’s via Bloomberg

Sotheby’s, the auctioneer of art and collectibles that gained a new chief executive officer in March, posted a profit in the first quarter as commission revenue increased.

Net income was $5.2 million, or 7 cents a share in the quarter ended March 31, compared with a loss of $6.1 million, or 9 cents a share in the same period last year, Sotheby’s said Monday in a statement. Adjusted earnings of 11 cents a share beat the break-even estimate of six analysts in a Bloomberg survey.

Auction commission revenue increased 8 percent, which Sotheby’s attributed to its change in the commission structure Feb. 1. Buyers now pay 25 percent on the first $200,000 of the hammer price; 20 percent on the portion of the hammer price above $200,000 up to and including $3 million; and 12 percent on any remaining amount above $3 million.

Sotheby’s shares rose 0.64 percent to $44 at 10:35 a.m. in New York. Shares gained 1.2 percent this year through May 8.

The auction house typically posts a small loss or profit in the first and third quarters. The biggest sales are held in the second and fourth quarters.

Surging Prices

Art prices have surged as demand increases, and Sotheby’s competes with Christie’s to land the best consignments. Sotheby’s revenue in the quarter was $155.7 million, down from $156.8 million in the year ago period. Expenses fell 10.1 percent to $137.3 million.

Tad Smith, a media and entertainment executive who was previously the head of Madison Square Garden Co., became president and CEO at New York-based Sotheby’s on March 31, replacing William Ruprecht.

In his first Sotheby’s earnings conference call with investors Monday, Smith reiterated the company’s broad strategic plan to develop a growth strategy and accelerate the auction house’s use of technology.

He said Sotheby’s needs to build its private sales business through “internal improvements and external alliances.”

“Last year we did $626 million in private sales, which seems a small amount in a $35 billion estimated market,” he said.

Smith said the auction house will look for “opportunities to improve our position in attractive geographic markets” including Asia, the Middle East and South America. He said it’s probable that within a year or two Sotheby’s will dedicate more resources to attracting clients from those regions.

Asian Buyers

Asia’s richest man, Wang Jianlin, was the buyer of a Claude Monet painting that sold for $20.4 million at Sotheby’s Impressionist and modern art sale in New York on May 5, the auction house said. The 1913 oil painting was purchased by Dalian Wanda Group, the closely held company controlled by Wang.

Chinese movie mogul Wang Zhongjun bought a Picasso for $29.9 million at the same sale, where Asian collectors purchased three of the sale’s top five lots, Sotheby’s said.

Sotheby’s, Christie’s and Phillips are conducting semi-annual sales this week in New York. Sotheby’s May 5 evening sale totaled $368.3 million of Impressionist and modern art, the company’s second highest tally for a sale in that category. Overall sales in the category last week was $420.4 million, Sotheby’s said.

‘Sensible Risk’

Smith said the use of guarantees -- when the auction house agrees to pay the seller an undisclosed minimum price regardless of the sale’s outcome -- will continue, but “strategy, opportunity, judgment and sensible risk management will guide our use of these guarantees.”

Some guarantees “do not perform in auctions the way we would have hoped, with the result being that our company finds the lots on our balance sheet,” he said on the call. He said the auction house will continue to use third party partners to hedge the risk.

“We will not roll dice in the auction room with shareholders’ money,” Smith said. “At the same time, guarantees on high profile trophy lots can be important marketing investments and potentially generate positive momentum and product scope within certain art categories.”

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