Margin Pressure Shows Up In The Most Unexpected Place — Sotheby’s

Sotheby's Auctions

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Auction house Sotheby’s missed earnings expectations by $.03/share this evening, although generally the business at the very high end of things is pretty good.Year to date sales are up 31% year over year.

But the report gives a glimpse of how the business has changed since the heady pre-crisis days.

Suffice to say, if you thought margin pressure was only something facing companies that sold hard “goods”, you’re mistaken.

The competition to sell high-end art has gotten more fierce:

The first quarter has traditionally been a loss period for the Company because of the seasonal nature of the art auction market. However, for the first quarter of 2011, the Company is reporting net income of $2.4 million, or $0.03 per share, as compared to a net loss of ($2.2) million or ($0.03) per share in the prior year. This improvement is principally due to higher auction commission revenues resulting from a 23% increase in net auction sales, partially offset by a decline in auction commission margin from 17.2% to 16.4%, which is attributable to sales mix. In the first quarter, there was an increase in works of art sold in the upper price bands, including a 63% increase in the number of works sold over $1 million (from 62 to 101 lots). Competitive pressures to win these high value consignments resulted in lower commission margins as Sotheby’s sales approached the peak levels of 2006 – 2008.

Here’s more on how costs have gone up:

The improvement vs. 2010 is partially offset by a $14.7 million, or 16%, increase in operating expenses. A portion of this increase ($4.2 million) is attributable to higher dealer cost of sales principally due to $2.6 million in inventory writedowns and increased dealer sales revenues. Total operating expenses, excluding dealer cost of sales, increased $10.5 million, or 11%*, from the prior period.

But really, it’s fun times for the rich, especially in Asia:

Our April sales in Hong Kong brought a total of $447 million, a 75% increase from last year’s total of $256 million and the highest total ever for a sales series in Hong Kong. Virtually every day saw records broken, including a record for any work of Contemporary Chinese Art, as well as the highest totals at Sotheby’s Hong Kong for the sale categories of Fine Chinese Paintings, 20th Century Chinese Art, Modern and Contemporary Southeast Asian Paintings, Watches and Wine.