:Sotheby's reported results for the first quarter ended March 31, 2008, which included revenues of $129.3 million, an $18.1 million, or 12 percent decrease over the prior first quarter, primarily due to lower auction commission margins as compared to the prior year. It also said that it was again changing its buyer's premium percentages and thresholds to "enhance revenue streams and strengthen profit margins."
Net auction sales for the period increased a modest 2 percent; however, the company said that this reflects an increase in higher value works of art, consistent with its long-term strategic objectives, and is partially offset by a significant decrease in single-owner sales from the prior first quarter. Typically, high-value objects carry relatively lower commission margins, the company said.
Sotheby's said that because of the seasonal nature of the art auction market and the firm's sales calendar, first and third quarters are expected to be loss quarters. First quarter auction sales, it said, have historically represented approximately 9–14 percent of annual auction sales, and the first quarter has been a loss period for the company all but twice in the last 18 years. As a result, it said, first quarter results typically have not been indicative of expected full year results, and the company cautioned investors to assess the business in six- and 12-month periods.
"The market continues to be strong, and the demand for great works of art remains high, as we have seen throughout the spring, and most recently on Wednesday night [May 7 — Impressionist and Modern art sale]," said Bill Ruprecht, the firm's president and chief executive officer. "We are encouraged by year-to-date sales thus far, which are up 11 percent as of yesterday [May 8] and include strong results from our New York Impressionist sales. And we are looking forward to an excellent series of Contemporary sales, which includes Francis Bacon's masterpiece 'Triptych, 1976,' which is expected to bring in the region of $70 million."
Ruprecht continued, "In the first quarter we reduced our auction guarantee risk exposure as we believe it to be an appropriately prudent approach to risk management during this time of greater financial market uncertainty. This necessarily required our agreeing to thinner commission margins in order to win consignments. In addition, competition at the high end accelerated in the quarter, which also brought pressure on commission margins. That more conservative approach, which is the right one for these times, was a major factor in these results.
"In order to enhance our revenue stream and strengthen profit margins, we are announcing a pricing change of 25 percent on the first $50,000 of hammer; 20 percent on the next $950,000 of hammer; and 12 percent above hammer of $1 million, effective June 1. For over 95 percent of the lots we sell, this change will represent an increase of 2 percent or less in the final purchase price," continued Ruprecht.
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