Despite a 16% decrease in auction sales in the second-quarter of 2016 compared to the same period last year, the company’s profits were up 21% after they reduced their total expenses by $47m largely through staff cuts. The firm have also benefitted from increased auction commission margins – meaning the average percentage they receive per transaction has gone up.
The release of the results follows the news that Chinese insurance businessman Cheng Dongshen has bought a 13.5% stake in Sotheby’s. He is now the largest shareholder both at Sotheby’s and Beijing’s China Guardian Auctions – the second largest auction house in China.
“Decline in Market”
Sotheby’s said the fall in auction totals was due to “a comparable decline in the global art market”. They also admitted that the figures would have been even lower were it not for the timing of the summer Contemporary Art sales in London (held in the second quarter of 2016 whereas they were staged in the third quarter in 2015). These sales generated a combined £68.8m ($91.2m) including premium.
But, while revenues were falling, the company’s costs fell even faster. Sotheby’s total expenses were cut from $215.6m to $168.6m which included a $33m reduction in staff salaries.
The company introduced a voluntary redundancy scheme at the end of last year with the aim of cutting the 1600-strong worldwide headcount by around 5%. While the estimated cost of the scheme was an initial $40m, the effect of the savings came through in the current figures.
Sotheby’s president and chief executive officer Tad Smith said: “While we would certainly prefer to see a stronger art market, we are pleased with the progress we have been making on our strategic initiatives and the beneficial changes to our team and organisation.
“When the art market improves – and it certainly will – our company is poised to do very well for shareholders. Until then, we continue burnishing Sotheby’s for even more success and being very careful on capital allocation.”
Sotheby’s chief financial officer Mike Goss said: “The comparison of quarterly results can be skewed by changes in the timing of when auctions occur, such as the summer Contemporary sales in London. Looking at the first six months of this year, investors will have a realistic view of the current market, but they will also see our improved auction commission margins, meaningful cost control, and the impact of our ongoing share repurchase program.”
Sotheby’s share price opened this morning at 32.3 per share but climbed to over $38 per share by midday trading on the New York Stock Exchange.