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What: Shares of Williams-Sonoma (NYSE: WSM) sank as much as 15% on Thursday after the home goods retailer cut its current-quarter guidance.

So what: Williams-Sonoma sales have been helped recently by bargain-hungry shoppers, but today's fourth-quarter profit warning -- management expects EPS of $1.10-$1.15, down significantly from its previous view of $1.15-$1.20 -- shows just how heavily those discounts are weighing on the bottom line. While the shares have held up quite well over the past few months, today's news suggests that the Williams-Sonoma brand is losing some of its pricing power.

Now what: "Looking forward to fiscal 2012, we remain committed to the fundamental strategies that drove our record earnings performance in fiscal 2011 and allowed us to gain market share, invest in future growth, and improve companywide profitability," CEO Laura Alber said. In fact, the company backed up that confidence by raising its dividend 29% and even setting aside $225 million for a new buyback program. It's great that management is using its cash in shareholder-friendly ways, but if gross margin continues to decline, the stock price is almost sure to follow.  

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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