Warehouse Group shares dropped 8 per cent to $2.87 after New Zealand's largest publicly listed retailer said profit may fall between 10-and-15 per cent in the first half of its financial year on a weaker-than-expected run up to Christmas.
"We were a little surprised at the magnitude (of the downgrade). Obviously they have their challenges," said Paul Harrison, portfolio manager at Salt Funds Management.
"They are facing all sorts of competitive threats from new entrants and also online."
The retailer, known for its general merchandise 'red shed' Warehouse stores, faces significant headwinds from online platforms like China's Alibaba as well as others that offer heavily discounted merchandise.
In its latest monthly update on online retail sales, Bank of New Zealand said online retail sales at local sites were up 11 per cent in October versus the same month a year earlier but were up 17 per cent at offshore sites in the same period.
Harrison said the time may have come for the Warehouse to "resize the business" into something more appropriate as the "days of massive red sheds the length and breadth of New Zealand" has likely passed.
Looking ahead, he noted the falling New Zealand dollar will only add to the challenge as the company faces higher import costs that will be difficult to pass on to customers.
The New Zealand dollar is currently trading at a six-month low, weighed by a buoyant US dollar thanks to president-elect Donald Trump's promises to cut taxes and spend more and the Federal Reserve's plans to raise interest rates faster than the market had expected.
The Auckland-based company said its adjusted net profit is expected to be between $38.5 million and $41m in the six months ending Jan. 29, 2017.
Warehouse will release its complete first-half earnings on March 9, 2017, and provide an update on its strategy and plans to reduce costs, it said.