By Anne D'Innocenzio

NEW YORK (AP) - Best Buy Co. (BBY) is reporting a 90 percent drop in net income during the second quarter, dragged down by restructuring charges and weak sales. The company also withdrew its earnings guidance for the year.

The poor report was announced a day after Best Buy name Hubert Joly, former CEO of the Carlson travel company as its new CEO and president. The chain is also waging a public fight with its former chairman and co-founder Richard Schulze, who wants to take the company private.

The company also said it is halting stock buybacks for fiscal 2013 during the CEO transition. Shares of Best Buy fell almost 10 percent, or $1.76 to $16.40 on the news, following a 10 percent decline the day before on disappointment over Best Buy's CEO choice.

The nation's largest consumer electronics chain said Tuesday that it earned $12 million, or 4 cents per share, in the quarter ended Aug. 4. That compares with $128 million, or 34 cents per share.

Revenue declined nearly 3 percent to $10.55 billion.

Adjusted earnings were 20 cents per share. Analysts had expected 31 cents per share on revenue of $10.65 billion.

Revenue at stores open at least 14 months fell 3.2 percent for the entire business, including a 1.6 percent drop in its domestic business and an 8.2 percent decline in its international division. The measure is a key indicator of a retailer's health. Analysts had expected a 2.6 percent decline for the total business.

Best Buy said that U.S. sales growth in tablets, mobile phones, appliances and e-readers helped offset declines in gaming, digital imaging, televisions and notebook computers. The company said the international business was dragged down by lower revenue in China, Canada and increased competition in Europe.

Best Buy is hoping that Joly can turn around the company and bring stability that has been badly lacking. Joly, who is French and is expected to take over as CEO in early September when his visa is secured, succeeds Mike Mikan, a board member who has served as interim CEO since former CEO Brian Dunn resigned. Dunn left in April amid a company investigation into an "improper relationship" with a 29-year-old female employee.

Schulze resigned as chairman a month later after the probe found that he knew about the relationship and failed to alert the board or human resources.

Best Buy has struggled with weak sales since the middle of the recession as its big-box stores have become outdated. It's also contending with changing buyer habits. The stores, which shoppers once flocked to for low-priced music, movies and electronics, are becoming unprofitable as customers increasingly use them to browse for electronics, but then buy them cheaper elsewhere.

• <p> Showrooming -- the troublesome practice for local store owners that finds potential buyers kicking the tires of products before buying them cheaper online -- isn't going away.<br /> <br /> Amazon.com (<a href="http://www.dailyfinance.com/quote/nasdaq/amazoncom/amzn">AMZN</a>) reported a 34% spike in net sales during its first quarter on Thursday. Best Buy doesn't operate on the same fiscal calendar as the leading online retailer, but analysts feel that the company's top line will inch less than 3% higher when it reports next month.<br /> <br /> It's not Best Buy's fault. A company with the overhead of manning physical stores can't afford to sell at the prices that nimbler Web-based retailers can offer. The wide availability of the Internet as a research tool also makes the hands-on perspective that local retailers provide less necessary, and in some cases even less desirable.</p>
• <p> Some real-world chains are fighting back through exclusivity. Cheap-chic discount department store operator Target (<a href="http://www.dailyfinance.com/quote/nyse/target/tgt">TGT</a>) has been a strong player in stocking up on items that are only available through Target.<br /> <br /> Best Buy doesn't have that luxury.<br /> <br /> Best Buy confirmed on Thursday that it's killing Best Buy Connect, the retailer's private-label mobile broadband service. It never took off, and the service reportedly had just 11,000 customers. Yes, the company has private labels for home theater and other consumer electronics, but it's not as if the merchandise is considered unique. This isn't Sears (<a href="http://www.dailyfinance.com/quote/nasdaq/sears-holdings-corp/shld">SHLD</a>) with brand equity for its Craftsman tools and Kenmore appliances.</p>
• <p> Walk into a Best Buy and check out the racks of CDs, video games, books, and movies. All four of those media platforms are losing physical appeal as those industries go digital.<br /> <br /> In Thursday night's quarterly report, Amazon revealed that nine of the 10 best-sellers were digital products. Best Buy may think it's scoring a sale when it sells a tablet or a smartphone, but it's really simply handing over the tools that will result in that shopper relying less on in-store purchases.</p>
• <p> Another nugget in Amazon's report is that 130,000 of the books in its virtual marketplace are exclusive to the Kindle Store. Yes, a lot of that is vanity press stuff from authors who couldn't land real publishing deals, but 16 of Amazon's 100 best-selling e-books were exclusive to its store.<br /> <br /> Apple (<a href="http://www.dailyfinance.com/quote/nasdaq/apple/aapl">AAPL</a>), on the other hand, is the poster child of the modern ecosystem. The success of iTunes has turned Apple into the country's largest music retailer. There are now hundreds of thousands of apps in the company's iconic App Store.<br /> <br /> Best Buy has tried its hand at digital distribution of music and movies -- even to the point of buying Napster and CinemaNow -- but that hasn't panned out. Brick-and-mortar chains just don't have the high-tech appeal to launch cool digital ecosystems.</p>
• <p> The worst part about movies, music, books, and games going digital isn't just the empty space that Best Buy will have to fill. The company has enough sharp retail vets to put the space to work with store remodeling plans that are currently in the works.<br /> <br /> The worst part of the migration is that these are the items that forced shoppers to come back to Best Buy. You may only need a new washer once every 10 years, but there are always new DVDs hitting the market every Tuesday. New video games, CDs, and books are also always coming out. As more people replace physical media with digital -- and you do realize that Apple and Amazon are selling millions of tablets every passing quarter -- Best Buy will be a less frequent stop for even its most loyal customers.</p>
• <p> Best Buy conceded in its most recent report that it will have to get serious about lowering prices in the future. Its aggressive expense-shaving efforts will be partly passed on to shoppers in the form of better pricing.<br /> <br /> &quot;We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices,&quot; Best Buy explained last month.<br /> <br /> The problem is that it will probably never be able to cut its overhead to the point where it's truly competitive with Amazon and even cheaper e-tailers. This will force Best Buy into sacrificing margins on products, but hoping to make a profit by selling extended warranties, obsolescence insurance, and Geek Squad services. It's a plan that sounds fine on paper, but consumers are already tiring of the hard sell during the checkout process for services that they may never need. If Best Buy sees this as its future, it's underestimating what shoppers do when they're annoyed.<br /> <br /> They stop coming back!</p>
• <p> hhgregg (<a href="http://www.dailyfinance.com/quote/nyse/hhgregg-inc/hgg">HGG</a>) and Conn's (<a href="http://www.dailyfinance.com/quote/nasdaq/conns-inc/conn">CONN</a>) are some of the rare survivors in this field, and it's because they key in on heavy appliances, furniture, bedding, and even lawn care equipment that's harder to secure cheaper online, given the bulk of the items.<br /> <br /> Best Buy naturally sells appliances, but that's just 5% of its business. If Best Buy wants to emphasize big-ticket items that are purchased very infrequently -- thereby taking on the smaller hhgregg and Conn's -- it would probably have to close all but a store or two in each of its major markets. There just isn't enough business for these products to justify Best Buy's existing store base and square footage.<br /> <br /> In short, it's not going to happen.<br /> <br /> Best Buy may be in the process of closing nearly 50 stores over the next few weeks, but there will be more of that in the future unless trends reverse and positive catalysts emerge.</p>
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Best Buy has seen annual declines in revenue at stores open at least a year for two of the last three years. It posted a 1.8 percent drop in the latest fiscal year that ended March 3, a modest 0.6 percent gain in fiscal 2011 and a 1.3 percent decline in fiscal 2010.

Before the scandal with Dunn, the company begun to address its problems. In March, it announced a major restructuring that includes closing 50 stores, cutting 400 corporate jobs and trimming $800 million in costs.

Since then, interim CEO Mikan has been making strong statements about how he plans to restructure the company, focusing on services and revamping stores. In early July, Best Buy said it would lay off 600 staffers in its Geek Squad technical support division and 1,800 other store workers. The company also has been shrinking store size and focusing on its more-profitable products such as mobile phones.

But analysts - and investors - have been impatient. Analysts say some of these changes are too late. They also say that Best Buy needs to close more of its big-box stores, which no longer are necessary since people have shifted from buying big computers and TVs to snapping up smaller items like tablets and mobile phones.

Wall Street has been equally unforgiving of Best Buy's timing. Best Buy shares have lost nearly 70 percent of their value since their pre-recession peak of $56.66 in May 2006.

One of the most vocal critics of the company in recent months has been the company's co-founder. Earlier this month, Schulze, who has a 20 percent stake in the company, made a takeover offer for the chain, offering $24 to $26 per share. Best Buy had said it was considering the offer, which values the company at $8.84 billion.

Schulze said Thursday that he was committed to his offer for the electronics retailer and has heard from a number of private equity firms prepared to make "significant commitments." But Best Buy and Schulze went back and forth in public announcements over the weekend.

In a statement issued by Best Buy Sunday, it laid out certain terms for acquisition talks to proceed. Schulze rejected the terms, citing a company requirement that he forgo taking any offer directly to shareholder for 18 months as unacceptable.