Woolworths said its investment in the retailer was no longer required as part of its strategy in this country.
The Australian company bought a 10 per cent stake in The Warehouse in September 2006, effectively blocking rival supermarket operator Foodstuffs - which already had a 10 per cent shareholding - from making a takeover bid for the general merchandise seller.
Woolworths bought the 10 per cent stake at $6.50 a share and sold its remaining 8.8 per cent holding at $2.85 a share yesterday, a 4.8 per cent premium to Monday's closing price.
Shares in The Warehouse Group closed up 3.7 per cent at $2.82 last night.
Salt Funds Management managing director Matt Goodson said it was puzzling that James Pascoe had doubled its stake but ruled out a takeover bid.
"Clearly they must see turnaround potential at the company, which has struggled and continues to struggle."
Under the tenure of Mark Powell, who became chief executive in 2011, The Warehouse Group has embarked on a five-year turnaround programme that has included a $180 million refit of its core Red Sheds stores and acquisitions such as the Noel Leeming electronics chain and an 80 per cent stake in online sportsgear retailer Torpedo7.
James Pascoe upped its Warehouse stake from 6.3 per cent to 7.4 per cent in January. At that time market sources speculated that the Normans might be interested in having more influence over the listed retailer, possibly at the board level.
James Pascoe's other retail brands include jewellers Pascoes, Stewart Dawson and Goldmark.
The Warehouse released a disappointing trading update on January 7, saying adjusted first-half profit was likely to be about $37 million, which would be a roughly 20 per cent decline on the previous year.
Powell said poor weather had forced the Red Sheds to "sacrifice margin to manage seasonal stock sell-through".
The Warehouse will release its first-half result on Friday.
Stake boost
• James Pascoe raises Warehouse stake from 7.4% to 16.4%.
• Purchases the shares from Woolworths off-market for $87.1m.
• Warehouse shares closed up 3.7% at $2.82 last night.