After beleaguered Best Buy Co. Inc. delivered a soft earnings report Tuesday, the big retailer's shares plunged another 6.5 percent and investors questioned the company's strategy as the all-important holiday shopping season approaches.

Richfield-based Best Buy reported that second-quarter operating profits plunged 30 percent on flat revenue as consumers reined in spending. The stock closed at $23.35, near its 52-week low.

CEO Brian Dunn, while acknowledging the challenges, said Best Buy is generating large amounts of cash, investing prudently in a stock repurchase plan that cost $1.2 billion during the first half of the year, and in business initiatives that will pay off in the future.

"We continue to execute on our strategy in times of challenge," Dunn told analysts in a conference call Tuesday morning.

Net profit for the fiscal quarter ended Aug. 27 dropped 22 percent to 47 cents a share, from 60 cents a share a year ago. Analysts had expected 53 cents.

Sales of $11.3 billion were flat. Same-store sales among stores open at least 14 months -- a key gauge of a retailer's financial health -- slid 2.8 percent. Sales of televisions, gaming products, cameras, software and DVDs were all down.

Selling and administrative expenses rose 3 percent due to more ad spending, the addition of 113 Best Buy Mobile stores and 14 large-format stores.

"We believe our share price is such that we are undervalued in the market," Dunn said.

Best Buy has been hammered by cautious consumers and savvy shoppers who scout high-margin iPads, tablets, big-screen TVs and other goods at its vast network of stores, but end up buying them cheaper from online retailers who, at least so far, are not charging state sales taxes on their purchases. (However, there is growing pressure from California, Minnesota and other revenue-hungry states that say that's not fair for brick-and-mortar retailers.)

At least one analyst suggested that Best Buy will have to shrink its way to profitability in a market where it's not capturing its proportionate share of high-end mobile phone and other big-ticket items.

But analyst David Strasser of Janney Capital Markets said the Best Buy news Tuesday could have been worse and there was reason for optimism. Janney listed the stock as a "buy" with a 12-month target price in an improving economy of $46 per share.

Said Bill Frels, portfolio manager at Mairs and Power Funds, which owns Best Buy bonds but no stock: "They got too big too fast, and the younger people buying those high-margin products can save significantly by buying online than at the local Best Buy store, and that has hurt.

"The best selling point is that they are generating a lot of cash and buying back stock, and they've got a pretty good balance sheet. They might get things turned around and put a floor under the stock. But it's not the growth company it once was."

Dunn told analysts that Best Buy is making progress on a three-pronged strategy designed to increase "multichannel" sales and increase profitability. Dunn said he was encouraged by the response to the second-quarter opening of 113 mobile phone-only stores, the expectations of new models coming this fall, growing sales of electronic tablets and progress of third-party vendor sales on Best Buy's website, a strategy that broadens offerings for customers and gives Best Buy a percentage. Best Buy also is boosting its advertising spending.

"We intended to double our domestic online business in next three to five years," Dunn said. "We are cautiously optimistic about the back half [of this fiscal year]. There's a lot to be excited about for the holiday season."

Dunn also said Best Buy is pleased with programs designed to sell more Geek Squad computer repairs and other services to customers.

The company repurchased 12.7 million shares in the second quarter for $358 million.

Best Buy predicts 2011 earnings of $3.35 to $3.65 per share, including the share repurchases. Excluding that, the outlook is lower than its previous guidance of net income of $3.30 to $3.55 per share.

Analysts, who typically exclude one-time items from their estimates, expect earnings of $3.45 per share.

The company continues to forecast revenue of $51 billion to $51.2 billion.

In response to an analyst question, Dunn said Best Buy was better off with an aggressive stock repurchase plan over the next six months than an increase in the dividend of 64 cents per share, which is yielding about 2.6 percent on the current stock price.

Neal St. Anthony • 612-673-7144