"The Warehouse's performance has been disappointing and it faces a difficult retail environment with slowing sales and rising costs."
The Extra supermarket concept did not generate the returns expected and had now been abandoned.
That should remove any regulatory impediment to a Woolworths or Foodstuffs takeover, although the deteriorating New Zealand retail environment might be a deterrent, he said.
"The Warehouse has been maintaining margins better than most despite sales declines."
The Warehouse chairman Keith Smith said the group expected consumer spending and trading conditions to remain subdued for some time.
The business was in a strong financial position and was well placed for future growth.
The first quarter had seen difficult conditions but sales were on plan for the quarter, with margins being held at levels similar to last year.
There has been a slowdown in volumes, especially in larger ticket items, affecting Warehouse Stationery in particular.
"We continue to see positive sales results in our apparel, entertainment and consumables offer, which is very encouraging in the current environment. The first quarter has seen a solid start to the year.
"Of course, as always, the December and early January months are the most important period of the year, and therefore our year-end result is dependent on trading outcomes during this time."
Reviewing the past year, Mr Smith acknowledged it was a tough time to be a retailer in New Zealand and probably in many other countries.
The group earlier reported an after-tax profit of $90.8 million, compared with $114.8 million reported in the previous corresponding period.
The results, while below those of last year, were achieved while New Zealand was in recession and households struggled with sharp increases in the prices of food and petrol and falling house prices.
"I am not aware of any retailer who fully predicted the extent of the slowdown, but I am confident that we were one of the few who anticipated a shift and were already making changes which ensured we strengthened our business fundamentals for future growth," he said.
"Across the business, we are efficient, more customer-focused and our people are more engaged and committed to delivering increased sales, service and profitability."
