Sotheby's Reports $5.8 Billion in Sales for 2011 — Marking Its Second-Best Year Ever
Publicly traded auction house Sotheby's (NYSE: BID) released its year-end results Wednesday, revealing that 2011 was the second-best year ever for the company, despite a string of woes including the ongoing art handler lockout and a 26 percent slump in fourth quarter profits (net income was $71.5 million compared to 2010's $96.2 million in Q4). Below is a selected breakdown of the report, and a few details from the afternoon earnings conference call with the company's CEO William Ruprecht and CFO William Sheridan.
Total Consolidated Sales from 2011: $5.8 billion
That number includes all auction house business, including private sales. The figure puts the auction house roughly $100 million (or, a handful of great Picasso consignments, or 40 percent of a Cezanne "Card Players") ahead of its main competitor, Christie's, which reported revenues of $5.7 billion earlier this month.
Private Sales: $814.6 million
It's a continuing trend that the auction houses are moving sales to the back room (and thereby competing with galleries for private clients). Sheridan claimed on Wednesday's call that the trend is motivated by a desire to be relevant to clients 365 days a year, rather than only on set auction days. There is, of course, the added advantage that private sale prices are, well, private.
Full-Year Revenues: $831.8 million
Though $5.8 billion passed through the auction house, much of that was money transferred from buyer to seller. This is the real number that the auction house cares about — how much money the company actually brought in.
Net Income 2011: $171.4 million
That's a $10.5 million increase from 2010. It also tells us that it costs about $700 million per year to run a global auction business. Additionally, the auction house posted $2.46 diluted earnings per share, an increase of 5 percent from 2010 (when it was $2.34).
Average Commission Margin: 16 percent (down from 18 percent in 2010)
Two things contribute to a lower commission margin (the average cut of every sale the auction house gets): the first is competition: When Sotheby's drops commission fees to keep sellers from taking their wares to other auction houses. The second is higher sale prices. Buyer's premiums are charged on a sliding scale, so when a hammer price inches above $1 million the rate the buyer is charged drops significantly from 20 percent down to 12. Therefore, if the auction house is selling a lot of work above $1 million its average commission margin is going to go down. There is, of course, no way to break out the two factors as to how they contributed to the decreased margin.
Consolidated Sales in Asia: $1 billion
This is the first time the auction house has hit the 10-figure benchmark in Asia as business in the East continues to boom. On the earnings call, Sotheby's management noted that the company is continuing to invest in Asia, and will open new premises in Hong Kong soon. In terms of the percentage of high and ultra high-net-worth-individuals who avail themselves of Sotheby's services around the world, the company is "underpenetrated" in China (it was not mentioned, but that fact likely has something to do with the strong Chinese auction houses that operate on the mainland).