Consumer Edge Research

Sotheby’s Reports $54.5 Million Loss in 3rd Quarter

Robin Pogrebin, The New York Times
Nov 07, 2016

Citing a general slowdown in the art market and other factors, Sotheby’s on Monday reported a loss of $54.5 million in the third quarter, compared with a $17.9 million loss for the same period a year ago.

The auction house had expected the decline, which it attributed in part to the change in the timing of the summer contemporary art sales in London. They took place in the second quarter this year, having been scheduled in the third quarter in 2015.

Sotheby’s also recorded a $17.2 million pretax charge related to the acquisition in January of Art Agency, Partners, the art advisory business led by Amy Cappellazzo.

“The third-quarter results were not expected to be good,” Tad Smith, Sotheby’s president and chief executive, said in a statement. “Underneath our seasonally low level of sales, there were encouraging but tentative indicators that the market could be looking for a rallying point.”

Sotheby’s shares closed at $38.43, up 11.2 percent, on Monday on the results.

Analysts said Sotheby’s performance was largely a result of market forces outside its control.

“We’ve had a long period of art price inflation, and now we’ve started a period of a softer art market, which creates uncertainty,” said David Schick, the lead luxury analyst at Consumer Edge Research. He added that Sotheby’s “should be given credit for trying to think differently about evolving their business model,” by acquiring Art Agency, Partners, and trying to build private sales.

As part of its effort to think in new ways, Mr. Smith said in a conference call with investors Monday morning that he would like to see Sotheby’s develop customer research so that a bidder who lost out on an item could buy something similar privately from the auction house “within 24 hours.”

Sotheby’s private sales almost doubled to $167.9 million, from $84.9 million in 2015.

Sotheby’s said its quarterly losses were partly offset by an increase in its commission margin, to 16.5 percent from 15.3 percent.

The timing of the Art Agency charge will not affect the timing of Sotheby’s payments to the advisory’s principals, which are limited to no more than $8.75 million a year over a four-year period.

In general, the acquisition of the advisory business — for as much as $85 million — has resulted in “marked improvements ranging from competitive successes and enhanced auction commission margins to improved focus on private sales,” said Mike Goss, Sotheby’s chief financial officer.

At the end of 2015, Sotheby’s took a loss on the sale of the collection of A. Alfred Taubman, its disgraced former chairman.

On the conference call, Sotheby’s said that — excluding last year’s $383 million Taubman sale — it was likely to see lower sales in the fourth quarter, a decline consistent with a 26 percent drop in the overall art market over the last nine months.

“There are a lot of factors that look positive,” Mr. Smith said on the call. “But prudence dictates that we should wait and see.”

On Monday, Sotheby’s also announced the appointment of its first board member from Asia, Linus Cheung, a Hong Kong telecom executive. “He hails from a crucial part of our world — Greater China — that will be the foundation of a bright future for Sotheby’s,” Mr. Smith said in his prepared remarks. “His appointment is an important symbol of the relationships that Sotheby’s is building in China, especially with the help of our largest shareholder, Taikang.”

Sotheby’s loss per share increased to 99 cents, from 26 cents a year ago.

Sotheby’s, a publicly traded company, releases audited results quarterly. Its main competitors are privately held. Christie’s is owned by François Pinault, the French luxury-goods magnate; Phillips is owned by the Russian company Mercury Group.

http://www.nytimes.com/2016/11/08/arts/sothebys-reports-54-5-million-loss-in-3rd-quarter.html?smprod=nytcore-iphone&smid=nytcore-iphone-share