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Zalando invests in tech after muted first quarter

BERLIN (Reuters) - Zalando ZALG.DE, Europe's biggest dedicated online fashion retailer, reported a 30 percent fall in first-quarter profit as it stepped up investments in tech to grow its business, betting that more and more customers will shun stores to shop online.

A Zalando label lies on an item of clothing in a showroom of the fashion retailer Zalando in Berlin October 14, 2014. REUTERS/Hannibal Hanschke

E-commerce is growing faster than store-based retail and Zalando is spending on technologies to help brands sell directly on its site and keep ahead of rivals like Amazon AMZN.O, which is looking to expand in the fashion market.

Zalando said it had signed up over 150 partners, including Adidas ADSGn.DE and Superdry, and on Thursday announced the acquisition of Tradebyte Software GmbH for an undisclosed price to help it digitalize the stock in brands' warehouses.

“We want to become the partner of choice for brands when they think about online business,” management board member Rubin Ritter told reporters, adding the company hoped to make more acquisitions this year and was shopping for tech firms.

Bernstein analyst Jamie Merriman said she believed that Zalando might offer to handle deliveries and returns for brands at some point in the future.

Founded in Berlin in 2008, Zalando now employs over 10,000 people and has boosted spending on logistics and marketing, including an exclusive partnership to launch new sports label, Ivy Park, co-founded by pop star Beyonce, in continental Europe.

It is also testing same-day deliveries and making it easier to return unwanted products and has opened a new warehouse in northern Italy that has cut delivery times.

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The higher spending comes as Zalando faced a slower start to the year hurt by the mild winter and cool early spring that led to higher markdowns on clothing and shoes.

Adjusted earnings before tax tumbled to 20.2 million euros ($23 million) from 29.1 million euros a year earlier and its margin narrowed to 2.5 percent.

Sales rose 24 percent to 796 million euros, but missed consensus for 807 million euros.

Shares in Zalando, which have shed around a fifth of their value so far this year, were trading down 6 percent by 0900 GMT, the biggest faller on the MDax for medium-sized German companies.

The company reiterated full-year guidance for revenue growth at the upper end of a 20 to 25 percent range and an adjusted EBIT margin of 3.0 to 4.5 percent.

Rival ASOS ASOS.L has seen its shares boosted by stronger-than-expected sales for the first half to Feb. 29.

Reporting by Caroline Copley; Editing by Victoria Bryan and Adrian Croft

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