Its shares nose-dived on the news, down almost 9% to $2.85.
The downgrade comes the day after Paymark revealed New Zealanders had spent more than $2.6 billion in the first two weeks of December, up 6.1% on a year ago.
The highest spending was in Auckland, up 6% at $1.09 billion during the fortnight, while in Otago spending for the period was up 8.5% at $143.2 million.
However, Craigs Investment Partners broker Chris Timms said while sales were up for retailers, it was not a reflection of actual profit margins, which are being increasingly squeezed.
''They have to get things dead right,'' he said of the amount of stock inventory held and maintaining profit margins.
Pre and post-Christmas sales have become crucial for retailers, alongside Easter and, for many, the timing of their historic winter sales.
He said despite the boost seen in Paymark's overall figures, other retailers such as Briscoes and Kathmandu would have their margins under scrutiny.
Pumpkin Patch, in receivership because of $46 million of bank debt, is expected to be wound down by the end of January, with hundreds of jobs lost in New Zealand and Australia.
Warehouse group chairwoman Joan Withers said while sales growth had continued, margin pressure from an increasingly competitive retail environment and a below-expectation performance from its financial services were the two main contributors to the lower profit expectations. After-tax profit for the half to January was expected to fall 10%-15% from a year ago, between $38.5 million and $41 million.
''The lead-up to Christmas has been below expectations and while the next few weeks are an important trading period, it is unlikely that the year-to-date shortfall will be fully offset,'' Mrs Withers said in a statement.
Unless circumstances required the release of more guidance, she expected to next update the market when The Warehouse half-year results were announced on March 9.
Mr Timms said Craigs had lowered its 12-month target price on The Warehouse at the end of September, to $2.85.
He said while it had been trading ''reasonably well'' and was making progress with its restructuring programme, the profit downgrade ''came as a surprise'' to the market, given its extent.
