As well as lower sales in the Red Sheds, first half sales at Noel Leeming lagged behind last year and the Christmas sales rush did not bear fruit for the electronic goods retailer.
"The combination of flat sales and lower margins in the Red Sheds and lower sales in Noel Leeming have magnified the impact on first half profits compared to last year," Warehouse chief executive Mark Powell said.
"They have been trying to reposition the business and invest in it and it's clearly not making much of an impact," said Craig Stent, a director and research analyst at Harbour Asset Management, which doesn't hold Warehouse among its $1.2 billion in equities.
"It's a tough environment and clearly that whole proposition may have lost its shine," Stent said. "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 Nikko Asset Management's James Lindsay, 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 and margins are falling."
Similarly, 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."
Shares in the company touched $2.83, their lowest level since September 2012, and were recently down 24 cents at $2.87. Warehouse shares are rated an average 'sell' according to the estimates of six analysts compiled by Reuters.
Warehouse said online sales at its 'red sheds' stores increased 30 per cent on the year earlier.
However Nikko's Lindsay said that wasn't enough to offset sluggish instore activity.
Some of the impacts to the half's financials were one-offs such as rebranding costs for Noel Leeming and the group's online outdoor/sporting goods unit Torpedo 7.
"Therefore it is not expected that we will see a similar level of decline in the second half," Powell said.
Retailers had hoped positive economic conditions would offset a blustery and wet start to the spring and summer period but this did clearly not materialise for the Warehouse.
Shortly before Christmas, listed retailer Kathmandu also revealed bad news and its share price to a near two-year low as the company blamed low consumer confidence for a subdued start to holiday-period trading in Australia.
It said that due to reduced Australian sales, the total sales increase for the year had dropped from 18.6 per cent in November to 14.1 per cent last month.
While sales in New Zealand and the UK were up on last year, and there was potential for improved performance before the end of the first half of the reporting period, it was unlikely to make up for the drop in Australia.
See this morning's Warehouse profit announcement here:
- with BusinessDesk
