Sotheby’s released it’s Q3 earnings this afternoon. Since the third quarter has only a small number of sales it makes more sense to look at their recap of the first nine months of the year (see quote from the press release below.)
Remember that Sotheby’s has been in a year-long campaign to expand its margin from the buyer’s premium and reduce the costs of guarantees–not to mention the overhead costs of running the business by reducing 20% of the staff and drastically reducing travel and entertainment expenses. Taken together it amounts to $167 million worth of cost reductions.
They’re gaining on the margin because they’re no long giving that away to consignors. With the return of stronger sales, they may actually have a decent business for awhile. That is, until they start back into the ruinous competition of giving back their commission:
For the nine months ended September 30, 2009, net loss was ($80.1) million, or ($1.23) per share, compared to net income of $35.8 million, or $0.53 per share, in the prior year. This decline is primarily due to a 49% decrease in revenues, attributable to a 70% decline in net sales, as well as a significant increase in the Company’s effective income tax rate. The lower level of current year results are partially offset by a $137.8 million, or 31%, reduction in expenses during the first nine months of 2009, as well as $51.5 million in auction guarantee losses recognized in the prior year that were not repeated in 2009. Excluding restructuring charges in 2009 and a non-recurring benefit recorded in 2008, adjusted total expenses decreased $167.2 million*, or 36%*, when compared to the prior year.
Questions:
- Market share? Ruprecht says market share is 50/50 if you exclude the YSL sale. But 55/45 if you include YSL. But he claims that Sotheby’s and Christie’s are in very different businesses despite the constant media comparisons. Sotheby’s sells half the number of lots as twice the average price. He downplays the market share issue as a meaningful goal for Sotheby’s.
- Time to invest in the business? There will be more risk in cutting costs a lot or investing in a business that is important to us. We’re really disciplined now on costs but we need to think about what will drive successes.
- What have you done to manage the auction commission margin?
The thing that is relatively simple to describe is the centralization of decision-making. - Last nights buyers? Russian and Asian buyers are back in the market.
- Private Sales? Both channels are really important to us. But its a matter of consignor choice. Some sellers last night did better at auction than they had when they had the works on offer privately. Sotheby’s tends to get higher margins from auction sales.
- London heads up? This week and next week tend to be defining periods that influence the gathering cycle for the Spring. Our performance is going to recommend us as a team for London. Can’t give you any color, it’s just too early.
