Sotheby’s 2Q Revenue Down 6%

Sotheby’s reported that revenues fell 6 percent to $320.2 million in the second quarter of 2008, primarily due to the shift of its summer Contemporary sales in London from the second quarter of 2007 to the third quarter of 2008.

Those sales brought auction commission revenues of $24 million in the second quarter of 2007 and will contribute approximately $26 million to auction commission revenues in the third quarter of 2008, the international auction house said.

Auction commission margin for the period ended June 30 was 15.1 percent which is much improved from the 13.6 percent auction commission margin in the first quarter of 2008 although not quite as high as prior year second quarter auction commission margin of 16 percent, the company said.

Also impacting revenues in the second quarter of 2008 are unfavorable principal activities results for the period, the company said. Its net income for the period was $95.3 million, compared to net income of $107.3 million for the prior year’s period—a $12 million decline, largely due to the calendar shift. This decline is partially offset by lower operating expenses, which totaled $169.3 million compared to $182 million in the prior period, a 7 percent improvement.

Operating expenses include an $18.4 million one-time benefit ($11.7 million after-tax) recognized as a result of the reversal of the remaining liability related to the vendor’s commission discount certificates that expired in May 2008 and were issued by the company in 2003 in conjunction with the settlement of antitrust related civil litigation.

The company said the reduction in operating expenses is also partially attributable to a decrease in incentive bonus accruals as a result of the lower profitability of the first half and is somewhat offset by increased direct costs, primarily due to higher consignment and sales levels in Hong Kong, as well as higher catalogue and sale promotion costs related to the May Impressionist and Contemporary Art sales in New York.

For the first six months of 2008, aggregate auction sales were $3 billion, a record for Sotheby’s, and revenues were $449.4 million, an 8 percent decline year-over-year, due to the previously mentioned sales shift from the second quarter to the third quarter ($24 million revenue benefit in the first half of 2007) as well as lower auction commission margins and unfavorable principal activities results in the current period.

Net income for the first half of 2008 was $82.9 million, a 37 percent decline from the first half of 2007 largely due to the aforementioned shortfalls in auction and related revenues.

“These results are the second best in our history, and are remarkable in the context of today’s global economic environment,” said Bill Ruprecht, Sotheby’s president and chief executive officer. “Our conservative approach to risk, the significant improvement in our auction commission margins in the second quarter and our focus on costs have all contributed to healthy profitability.”

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