Warehouse chief executive Mark Powell says it will be "a very difficult ask" for the group to beat last year's profits after it announced weaker-than-expected sales and its share price touched its lowest point in more than two years.
While the country's largest listed retailer had expected profits for the six months to January 25 to be in line with last year, yesterday it said adjusted earnings after tax would be about $37 million - 20 per cent lower than for the same period a year earlier.
The company said poor weather in spring and summer meant second-quarter sales and margins at the Red Sheds were below expectations.
The share price slumped on the news, touching $2.83 - the lowest point since September 2012. Shares closed at $2.91, down 6.43 per cent.
Although better weather in recent days had improved the situation, Powell said the "damage was done" in November and December.
First-half sales at Noel Leeming, which the Warehouse Group owns, also lagged behind last year.
Powell said the electronic goods retailer had been performing relatively well against its competitors but things had been tough across the sector during the period.
There was price deflation across all products and no new big technology item coming through to offset this.
The Warehouse Group, in November, said it still expected to record a better adjusted net profit for this financial year than in 2014, when it posted earnings of $60.7 million.
However, Powell said yesterday that goal would be "challenging" . The company plans to revise its guidance for the 2015 financial year when it delivers its half-year result in March.
Forsyth Barr equity analyst Chelsea Leadbetter said if the company was going to meet that earlier guidance it would have to deliver 50 per cent earnings growth in the second half, which is traditionally weaker than the first. Director and research analyst at Harbour Asset Management Craig Stent said the company had been trying to reposition the business and it was "clearly not making much of an impact".
"It's a tough environment and clearly that whole proposition may have lost its shine. They are a large business so getting any growth is pretty hard in dollar terms and you have got competing offerings in the market chipping away all the time at your product offering and it's pretty hard to compete."
Harbour would need to see the path for growth to invest in the company again, Stent said.
"These guys have been trying to get on that journey for the last two or three years and it hasn't really materialised so it's hard for us as a growth investor to get too excited about this sort of company."
Stent's comments were echoed by James Lindsay of Nikko Asset Management, which also no longer holds the stock among its investments.
"They have spent a lot of money over the last few years and that just hasn't been showing great results as far as getting either top-line or bottom-line earnings uplifts," Lindsay said. "The key driver still remains the Red Sheds and sales are not really going anywhere ..."
Nikko would need to be convinced about the growth outlook to invest again, he said.
"There would have to be a sustained period of seeing that the capex was going to be providing ongoing uplift in sales and they were going to return to growth and that to me doesn't seem likely."
Powell said the company had turned around about seven years of sales decline and the profit position would be worse if that had not happened. The group had growth opportunities in financial services and with its online sporting goods retailer Torpedo 7.
"When you really sit down and look at strategy it makes complete sense ... but it's causing us to be a bit more patient than we want in terms of translating it into profit growth.
"I think the customers are seeing the benefit of it but it's not translating into sales growth."