Williams-Sonoma, the owner of its namesake, Pottery Barn and West Elm home-goods chains, fell the most in seven months after it forecast annual profit that trailed analysts' estimates.

The shares slid 4.2 percent to $56.97 in Wednesday's trading, for the biggest decline since Jan. 17. Williams-Sonoma, based in San Francisco, has gained 30 percent this year, compared with a 15 percent increase for the Standard & Poor's 500 Index.

The retailer has been using promotions that eroded its profitability to maintain store traffic amid increased competition. Profit excluding some items in the current fiscal year will be as much as $2.79 a share, up from a previously projected maximum of $2.77, the company said today in a statement. Analysts estimated $2.81 on average.

Gross margin, or the portion of sales left after subtracting the cost of goods, shrank to 37.6 percent from 38.3 percent a year earlier amid the markdowns.

Promotional e-mails from the Williams-Sonoma brand rose 31 percent during the quarter, Matt Nemer, an analyst at Wells Fargo in San Francisco, wrote in an Aug. 20 note to clients.

Nemer rates the shares market perform, the equivalent of hold.

Net income in the three months ended Aug. 4 advanced 13 percent to $48.9 million, or 49 cents a share, from $43.4 million, or 43 cents, a year earlier, the company said. The average estimate of 26 analysts surveyed by Bloomberg was 47 cents.


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Revenue rose 12 percent $982.2 million. Analysts estimated $939.4 million. Second-quarter sales at stores open at least a year fell 0.4 percent at Williams-Sonoma stores. They gained 9.9 percent at Pottery Barn, and 17 percent at West Elm.