Sotheby's First Quarter 2012 Financial Results

Sotheby's has released its first quarter 2012 financial results with total operating revenues of $105.5 million, down $14.6 million or 12% from the prior period.  Auction sales during the first quarter were down $172 million or 29% for the quarter.

It is important to keep in mind, and as the Sotheby's notes suggest, first and third quarter sales are typically weak due to the seasonal nature and schedule of auctions.  For example, the important NY Impressionist, Modern and Post War and Contemporary sales are held in the 2nd quarter, so those results should be much stronger.

Sotheby's reports

For the three months ended March 31, 2012, operating revenues totaled $105.0 million, a $14.6 million, or 12%, decrease from the prior period. This decline is primarily due to a $172 million, or 29%, reduction in net auction sales. In 2011, Sotheby's had unusually strong first quarter auctions, led by Looking Closely, the exceptional single owner sale in London of Impressionist and Contemporary Art which alone totaled $132 million in net auction sales. Partially offsetting the decline in net auction sales is an improvement in auction commission margin, from 16.4% in the first quarter of 2011 to 18.1% in the first quarter of 2012. This margin recovery is primarily attributable to the sales mix, as there was a 23% decrease in the number of lots sold with a hammer price over $1 million, as well as an increase in the average seller's commission rate earned in the current period and a lower level of shared auction commissions. In addition, private sale commission revenues improved by $7 million, or 85%, primarily due to increased sales of high value property.

Net loss for the three months ended March 31, 2012 was ($10.7) million, or ($0.16) per diluted share, as compared to net income of $2.4 million, or $0.03 per diluted share in the prior period. This decrease is largely due to the aforementioned decline in net auction sales and revenues, as well as a 5% increase in operating expenses, in large measure attributable to investments in support of Sotheby's strategic initiatives, including the development of Sotheby's presence in growth markets. The comparison to the prior period is also impacted by a $3 million recovery recognized in the first quarter of 2011, resulting from the favorable resolution of a legal matter.

Because of the seasonal nature of the art auction market, first and third quarter results have historically reflected a lower volume of auction activity when compared to the second and fourth quarters and, typically, a net loss due to the fixed nature of many of Sotheby's operating expenses. As a result, first quarter results are typically not indicative of expected full year results. Management believes that investors should focus on results for six and twelve month periods, which better reflect the auction market business cycle.

"As the excellent results of our May auctions make abundantly clear, the first quarter results are in no way reflective of a slowdown in demand for works of art around the world," said Bill Ruprecht, President and Chief Executive Officer. "Our first quarter results are largely comparable year on year were it not for the exceptional single owner sale Looking Closely in the prior year.

"Art continues to be viewed as an attractive asset class by collectors around the world," continued Mr. Ruprecht. "Particularly encouraging, private sales showed good momentum in the first quarter, with commission revenues up by 85%. Going forward private sales will continue to be an area of strategic focus, as will the web and our presence in high growth global markets where we are already seeing meaningful results."

Source: Sotheby's