Sotheby's Says Investor May Boost Stake to 10%, Shares Gain

Updated on
  • Investor news overshadows wider-than-expected quarterly loss
  • Auction house could be bought as `trophy asset,' analyst says

Sotheby’s said an investor may increase its stake to as much as 10 percent. The shares rose 6 percent.

Chief Financial Officer Michael Goss said the investor may buy shares on the open market or through a private transaction. Shareholders below the 10 percent threshold include BlackRock Inc. and Steven Cohen’s Point72 Asset Management, according to regulatory filings.

“We continue to think BID may be better suited as a private company and bought as a ‘trophy asset’ long term,” David Schick, a luxury analyst at Consumer Edge Research LLC, said in a research note on Monday. He added that “talk of a meaningful buyer reminds investors of this view -- this outside investor conversation could mean any type of firm of course, but long-term owners of luxury brands come to mind.”

The news came after the auction house reported that first-quarter earnings missed analysts estimates and Tad Smith, the chief executive, predicted a sharp decline in spring auction sales beginning Monday night. Sotheby’s reported an adjusted loss of 35 cents a share, worse than the 22 cent loss estimated by five analysts in a Bloomberg survey.

Smith said the estimates for this week’s auction of Impressionist, modern and contemporary art are down 38 percent, at the midpoint of the range, from a year ago. The company gave an estimate for the week of $464.4 million to $633 million. Smith said he was “cautiously optimistic” about the outlook.

Feeling Good

“When I said in the prior earnings call that we are going to have one or more bad quarters I think we are going to keep it to one,” he said Monday. “I feel good about things.”

The volume of trading Monday was 5.4 million shares, more than four times the three-month average. Sotheby’s closed at $28.91 a share. Earlier in the day, Sotheby’s fell as much as 8.5 percent. The stock is up 12 percent this year, compared with less than a 1 percent gain for the S&P 500 Index.

Before today, Sotheby’s had lost more than one-third of its value in the past year even as Smith revamped management and cut staff under pressure from the largest shareholder, hedge fund manager Dan Loeb. His Third Point has an 11.4 percent stake in the company.

Sotheby’s net loss was $25.9 million, or 41 cents a share, compared with a profit of $5.2 million, or 7 cents, a year earlier. The company typically reports a loss in the first quarter due to the seasonality of the auction business.

No ‘Vanity Deals’

Among the positive signs for the company: auction commission margin for the first quarter improved to 15.4 percent from 15 percent in the prior period. The change was due in part to higher margin sales and greater pricing discipline, the company said.

“I don’t think that the idea that we would be racing to do risky or low-margin, vanity deals just to pump up the market share numbers is not necessarily on our table right now,” Smith said.

Private sales declined 25 percent and Sotheby’s also had a loss from its inventory activities. Total revenue fell 32 percent to $106.5 million. First-quarter net auction sales declined 35 percent.

The high-end art market “appears to be going through a correction,” said Taposh Bari, an analyst at Goldman Sachs Group Inc., before the earnings were issued. The spring season has an absence of “big ticket lots,” he said.

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