Covered outhouse to retain warmth (8)
I believe the answer is:
sheathed
'covered' is the definition.
(sheathing is a kind of covering)
'outhouse to retain warmth' is the wordplay.
'outhouse' becomes 'shed' (I've seen this before).
'to retain' is an insertion indicator.
'warmth' becomes 'heat' ('heat' can be a synonym of 'warmth').
'shed' placed around 'heat' is 'SHEATHED'.
(Other definitions for sheathed that I've seen before include "Of sword, placed in scabbard" , "Put sword back in covering" , "put in protective cover" , "in a case like this" , "Covered for protection" .)