German Online Retailer Zalando Quarterly Sales Gain 35%

Zalando AG, Europe’s largest online shoe and fashion retailer, reported a 35 percent gain in first-quarter sales, increasing the spotlight on the German company ahead of a potential initial public offering.

Revenue was 501 million euros ($693 million), compared with 372 million euros a year earlier, the Berlin-based company said today. That exceeded the 478 million-euro average estimate in an SME Direkt survey. Zalando also said it moved closer to breaking even as it ironed out process difficulties in distribution and spent less per euro of revenue to attract new customers.

Zalando has picked Credit Suisse Group AG, Goldman Sachs Group Inc. and Morgan Stanley to manage an IPO, according to people familiar with the matter, who asked not to be identified because talks are private. The listing could happen as early as the third quarter, two of the people said, and is likely to take place in Frankfurt, one of them said. Rubin Ritter, a member of Zalando’s management board, declined to comment on the possibility today.

“There have been rumors since the company was founded, initially it was about it being sold, now it’s about an IPO,” Ritter said on a conference call. “While we’re flattered that there is so much interest in us, I never comment on any rumors. I’ve been saying for the past year that we’ll keep looking at all options and that may include an IPO.”

Online Decline

A slump in the price of online retailing shares this year may be a concern for Zalando’s owners, who include Sweden’s Investment AB Kinnevik, Russian billionaire Yuri Miller’s DST Global LP, JPMorgan Chase & Co. and Quadrant Capital.

Asos Plc, the U.K.’s largest online-only clothing retailer, has declined 33 percent in 2014 after reporting slowing sales growth and saying increased investment will weigh on earnings this year. Smaller competitor Plc has fallen 39 percent since hitting a peak on its first day of trading in March and now trades only marginally above its IPO price.

Kinnevik last month reduced the multiple of sales at which it values its 36 percent stake in Zalando to 1.9 times from 2 times to reflect lower profitability at the German company. The equity value attributed to Zalando remained unchanged at 3.9 billion euros ($5.4 billion) as of March 31, reflecting the online retailer’s strong sales growth, Kinnevik said April 28.

Kinnevik shares rose as much as 8 percent in Stockholm today, the steepest intraday gain in four years. They were up 5.2 percent at 240.2 kronor as of 2:40 p.m., though are still down 21 percent in the year to date.

Adverse Weather

“With online sales of apparel booming, there is certain to be investor appetite for pure-play e-tailers like Zalando,” Ashma Kunde, an analyst at Euromonitor International in London, said by e-mail.

Online retailing has more than doubled its share of apparel spending in western Europe over the past five years, according to the researcher. Companies such as Zalando and Asos accounted for about 10.6 percent of clothing sales in the region in 2013, up from 4.5 percent in 2008, Euromonitor estimates.

Zalando’s sales growth was similar to the previous quarter’s 36 percent, even though business was affected by adverse weather condition, according to the company.

“The figures today shows things are going well for Zalando,” Bjorn Gustafsson, an analyst at Kepler Cheuvreux, said by phone. “I believe it’s a prerequisite they make a positive Ebit to be able to list the company.”

Zalando’s profit margin “improved significantly” in the quarter, though remained negative, the company said.

The margin improvement “underlines our plan to take a significant step towards, but not quite reaching Ebit breakeven at group level for the full year 2014,” Ritter said.

(An earlier version of this story corrected Rubin Ritter’s title.)

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