Sotheby's reports loss but hopes for recovery

Posted Aug 5th 2009 10:00AM by Tom Johansmeyer
Filed under: Sotheby's (BID)

An embittered Sotheby's (NYSE: BID) has turned in its first quarterly profit in a year, showing signs that the worst of the art market slump may be over. The company, which has seen contemporary art auction prices fall 76.2% from May 2008 to today, reported a decline of 87% in earnings for the second quarter, but company CFO William Sheridan says that the worst of this market is behind us. Sell-through rates are up, with more inventory moving likely to help with sagging revenues.

But commission revenue seems to be headed in the wrong direction. For Q2, Sotheby's reported commission revenues at 21.3%, up from 41% year-over-year. Unfortunately, this isn't the measure you want to go up. Lower-priced pieces tend to have higher commission rates, meaning that the auction house's Q2 performance was dragged down by less desirable inventory.

The change in art market conditions is what Sotheby's needs, but the company's recent cost-cutting efforts have done a decent job of helping the house persevere in the ongoing art recession. Sotheby's has lowered its operating expenses by 39% ($73.5 million).

The fact that we may be at the bottom, though, doesn't mean we should allow too much optimism yet. The market has a long way to go to reach 2007 and early 2008 levels. Remember: a 50% decline one year requires a 100% increase to break even.

Tags: art auctions, art market, ArtAuctions, ArtMarket, auctions, bid, inthenews, sothebys