Image: Sotheby's.

High-priced auctions still command attention throughout the world, and in an industry in which reputation is everything, Sotheby's (NYSE:BID) has held onto its history of success as an auctioneer of some of the rarest pieces of art in history. Yet the rise of newer methods for selling even high-priced luxury objects has created competitive threats for Sotheby's, and coming into Friday morning's second-quarter financial report, Sotheby's investors had sent the stock to its lowest levels since March on fears that the company wouldn't do as well as they hoped. For its part, the auction house badly missed estimates, but it made it clear that it expects the rest of the year to make up for its second-quarter shortfall. Let's look more closely at Sotheby's to see why it did so poorly and why it thinks the effect will be only temporary.

Sotheby's deals with a changing schedule
Sotheby's second-quarter results suggested a business in decline. Revenue fell by 1% to $332 million, which was weaker than the 2% sales growth that investors had wanted to see from the auction house. The negative impact on adjusted net income was even more dramatic, as it fell 17% to $87.8 million. That produced adjusted earnings of $1.04 per share, missing the consensus forecast by $0.20 per share.

Yet Sotheby's blamed most of the problems on a couple of factors. First, the auction house's well-known summer evening sale of contemporary art in London was moved from the second quarter last year to the third quarter this year, and that therefore pushed all the resulting revenue and profit from the sale out of Sotheby's second-quarter results for 2015. In addition, income took a hit due to a loss from a painting that Sotheby's acquired earlier this year and sold during the second quarter. However, the auctioneer explained that it expects an offsetting profit later this year from another acquired painting that sold during the quarter but for which it has not yet received payment.

Meanwhile, most of Sotheby's fundamentals were consistent with its overall performance. Revenue from agency commissions and fees eased downward by 2%, with the delayed London sale likely explaining most of the drop. Revenue from inventory sales, previously referred to as principal revenue, fell by a fifth, while the finance segment was the biggest bright spot, seeing revenue jump nearly by half.

Even as overall sales fell, Sotheby's expenses kept climbing. The loss resulting from the acquired painting found its way into Sotheby's cost of inventory sales, but especially troubling were the more than 10% increase in salaries and the 17% rise in general and administrative costs. The higher costs largely offset the progress that the auction house had seen in the first quarter of 2015.

CEO Tad Smith was happy with the strength of Sotheby's numbers, dismissing the adverse events as "some anomalies in the second quarter [that] depressed the bottom line." As Smith noted, "We are moving forward with our strategic plan and look forward to reporting its results in due course."

Can Sotheby's bounce back?
If the auction house is right about the seasonal impact of the London contemporary art show, then investors should expect to see Sotheby's make up its lost ground when it reports its third-quarter results in November. After the show's conclusion in early July, Sotheby's said that the $232 million in combined auction sales was the company's highest ever for the London series of shows. The evening show alone brought in almost $205 million, which was the highest total for any contemporary art auction for Sotheby's throughout Europe, and the total was up 30% from the year-ago event.

Moreover, Sotheby's has retained its popularity within the industry. The company drew participants from 35 countries and saw the highest number of bidders for any London contemporary art sale, with 20% of buyers not having bid in the category previously. With high-profile sales of artwork by Andy Warhol and Francis Bacon, Sotheby's has done a good job of finding sellers willing to work with the firm.

Long-term investors in Sotheby's should likely dismiss most of the company's poor results this quarter, based on the success of the July London show. In the long run, what's far more important is for Sotheby's to keep its costs in check and to continue attracting the popular items that keep bidders coming back year after year.