Every company likes to succeed, but the downside of success is that investors want you to keep building on your past achievements. Subsequent setbacks can be disappointing. For art and collectibles auctioneer Sotheby's (NYSE:BID), a great set of earnings results in mid-2016 was good for shareholders, but it also made it much harder for the company to duplicate its strong performance in the subsequent period.

Coming into Thursday's second-quarter financial report, Sotheby's investors had no illusions that it would be easy to top last year's strong performance, but they still hoped that the auctioneer would at least be able to match what it accomplished last year. Sotheby's failed to meet that benchmark, although it was still optimistic about the current state of the market and its own prospects for growth in the future. Let's take a closer look at Sotheby's to see what its results say about how high-end art and collectibles are faring.

Auctioneer at a Sotheby's podium selling a piece of Impressionist art at a live auction.

Image source: Sotheby's.

Sotheby's drops the hammer on a mixed quarter

Sotheby's second-quarter numbers showed how difficult it can be to follow up on a good year-earlier quarter. Revenue was up more than 5% to $314.9 million, just barely exceeding the consensus forecast among investors. Yet net income fell 14% from year-ago levels to $76.9 million, and even a substantial drop in share count wasn't able to prevent earnings from falling to $1.43 per share, down 6% from the second quarter of 2016 and disappointing those following the stock who had hoped for flat year-over-year bottom-line results.

Looking more closely at Sotheby's results, the saving grace for higher revenue from the auctioneer was once again a rise in sales from its own inventory. Agency commissions were up just 1%, but inventory sales nearly quadrupled as Sotheby's continued its strategy to minimize its inventory levels in favor of raising cash. Inventory is now down to $131 million, and more than half of that is wrapped up in an already-sold diamond on which Sotheby's hasn't yet collected payment.

The big issue for Sotheby's was the fact that last year's quarter went so well. An outstanding spring sale series in Asia in 2016 and record jewelry sales at its Geneva auction last year presented tough comparisons for 2017 results.

Fundamentally, Sotheby's saw some good things happening with its business. Private sales during the first half were up a third in dollar terms from 2016's first half, and the number of private transactions climbed by more than half. More clients are doing transactions, and higher numbers of bidders per lot and an increase in the number of high-priced auction lots point to a longer-term uptick for the auction market. Also, the U.S. market rebounded after a long slump, and Europe also grew substantially to help the regions catch up with the still-strong Asian market.

What's ahead for Sotheby's?

CEO Tad Smith was generally pleased with how Sotheby's is doing. "Overall, the quarter was solid," Smith said, "and I am confident that more growth will come both as the market improves and as our investments begin to yield returns." The CEO pointed to efforts to flesh out its online business as an important complement to its traditional auctions.

Sotheby's identified its strategic goals for the future. The company expects to offer more services to customers, build up its art advisory service to deepen client relationships, update marketing materials for a digital and social world, and look at areas like jewelry and wine to add to its extensive art expertise. Adding staff to cater better to client needs should pay off with greater customer loyalty in the years to come.

Yet Sotheby's shareholders couldn't get past the earnings shortfall, and the stock fell 6% in morning trading following the announcement. Even with today's small sell-off in the stock, Sotheby's has already shown its ability to keep finding ways to adapt to changing conditions in the art world, and its experience and competence in navigating the auction world should help it recover and grow in the long run.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Sotheby's. The Motley Fool has a disclosure policy.