Sotheby's released its first quarter 2013 results on Thursday, and the news is not overly promising. The auction house had revenue of $101.7 million, down 3% from the same quarter a year earlier. Auction commission margins were down, even though total net sales increased by 23%. The explanation was most of the sales increase came from the ultra competitive modern and contemporary sectors, and to attract the best art, deals on commissions are made. Overall the quarter resulted in a net loss of $22.3 million compared to $10.7 for the 1st quarter in 2012.
Sotheby's reported the following on earnings
May 9, 2013, New York - Sotheby's (NYSE: BID) today reported financial results for the first quarter ended March 31, 2013.
Sotheby's reported first quarter total revenues of $101.7 million, a $3.2 million, or 3%, decrease from the prior year, principally due to a decline in auction commission margin to 15.0% from 18.1% in the prior year first quarter. Net auction sales increased 23% in the first quarter as compared to the prior year, but this improvement was in the most competitive categories of Impressionist, Modern and Contemporary Art, where the climate for the most high-value consignments remains very competitive and with such consignments often earning thinner auction commission margins. In the first quarter, there was a 35% increase in the total sale price of lots sold over $1 million, where auction commission margin experiences the most pressure.
In order to enhance revenue and strengthen auction commission margins, Sotheby's enacted a change to its buyer's premium rate structure that became effective March 15, 2013. Buyers at auction now pay 25% on the first $100,000 of hammer price; 20% on the portion of hammer price above $100,000 up to and including $2 million; and 12% on any remaining amount above $2 million. For over 98% of lots sold, this change represents an increase of 2% or less in the final purchase price and for all lots, a maximum 3.6% increase in the final purchase price. This price change did not have a material impact on Sotheby's results for the first quarter of 2013, as a large majority of Sotheby's auctions for the period were conducted prior to that date. However, based on sales results and business-getting efforts to date, it is expected to contribute to an improvement in auction commission margin in the second quarter of 2013 when compared to the first quarter of 2013 and the second quarter of 2012.
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.
Net loss for the three months ended March 31, 2013 was ($22.3) million, or ($0.33) per diluted share, as compared to ($10.7) million, or ($0.16) per diluted share in the prior period. This decrease is largely due to the aforementioned decline in auction commission margin and to a lesser extent, an 8% increase in operating expenses, which in large measure is attributable to planned investments in support of Sotheby's strategic initiatives, including the development of Sotheby's presence in growth markets.
"The first quarter showed a solid increase in auction sales compared to the prior year, but the results illustrate how competitive the market is for the highest value consignments. That competition resulted in lower commission margins, which is reflected on the bottom line. It's not where we prefer to be, but these results need to be seen in the context of thinking about the full year 2013. The increase in buyer's premium will help improve revenue margins as the year continues," said Chairman, President and CEO Bill Ruprecht.
"The results also show that we continue to invest in the future, moving ahead with initiatives that expand our global relevance and reach: redefining and personalizing the client experience at Sotheby's, delivering web-based tools across the globe so our clients can engage with us anywhere, at any time on any device, presenting a host of truly exciting private sale shows in newly-designed galleries in New York, London and Hong Kong and, of course, expanding our presence in China and elsewhere," he continued.
"We have historically adapted to a changing world. We are still an auction house, but today we are also much more. We have built on our 270 years of success to become an innovative and global art business. And with very good reason - new markets now account for 40% of worldwide buying activity in our sales rooms," said Ruprecht. "This week's Evening Sale of Impressionist and Modern Art is a great example. We saw bidders from 45 countries participating - including the largest number from Latin America and Asia we have ever witnessed for an Evening Sale of Impressionist and Modern Art at Sotheby's. We are truly bringing a world of art to a new world."
Second Quarter Sales
This week in New York, exceptional works from prominent estate collections drove Impressionist & Modern Art sales to a strong total of $288 million, near the pre-sale high estimate of $296 million. Both the sales total and the sell-through rate of 84.5% for the evening sale rank among Sotheby's highest in this category in recent years. The top lots of the sales were from the collection of Alex & Elisabeth Lewyt - Paul Cézanne's Les Pommes which sold for $41.6 million and Amedeo Modigliani's L'Amazone which sold for $25.9 million.
Last month in Hong Kong, an excellent group of sales brought a total of $280 million, at the high end of the pre-sale estimate. Over 3,100 lots were sold to buyers primarily from Asia but with worldwide competition. Solid prices were achieved throughout the week, with the Fine Chinese Paintings auction more than doubling the pre-sale estimate, the Watches sale bringing the highest total ever for a sale of timepieces in Asia and for Sotheby's worldwide, and the Magnificent Jewels sale earning a per-carat auction record for a round white diamond with the sale of a stunning 28.86-carat Round D Flawless Diamond for $6.9 million, or $239,000 per carat.
Also last month, Sotheby's Contemporary Art sale in Doha brought outstanding results. The sale totaled $15.2 million, a record for a sale of Contemporary Art in the Middle East region and towards the high end of the pre-sale estimate. Records were set for nine artists, including a record for a living Arab artist. Bidders from fifteen countries across four continents participated in the sale which affirms the growing importance of Qatar in the international art world.
Sotheby's April sale of Magnificent Jewels in New York brought $53.5 million, the highest ever total for a spring sale of jewelry at Sotheby's New York and above the pre-sale estimate of $36/$49 million. Highlighting the sale was an exceptional pear-shaped diamond of nearly 75 carats which sold for $14.2 million, the record for any white diamond sold in the Americas.
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