A day after announcing plans to snap up shoe retailer Zappos, online retail giant Amazon.com said second quarter profit dropped 10 percent in the second quarter to $142 million, or 32 cents a share. Sales increased 14 percent to $4.65 billion, but fell just short of analyst expectations.

Amazon shares were down nearly 7 percent in after-hours trading.

“We’re pleased that customers saved more than $900 million with our free shipping offers, including Amazon Prime, over the last year,” Amazon CEO Jeff Bezos said in a statement . “We’re staying heads down focused on providing customers low prices, vast selection, and fast delivery.”

Analysts had expected Q2 earnings of 32 cents a share and revenue of $4.67 billion. Amazon said sales would have grown 20 percent if not for the unfavorable impact of foreign exchange rates.

"It wasn't a blowout quarter by any stretch," said Dan Geiman, an analyst covering Amazon for Seattle brokerage McAdams Wright Ragen. "Their revenue growth was decent. It wasn't nearly what it has been, though they're being impacted by foreign currency."

Amazon expensed the cost of its $51 million settlement payment to Toys "R" Us in the second quarter. Amazon in June announced plans to settle its long-running litigation with Toys "R" Us over a broken ecommerce partnership.

Amazon on Wednesday said it plans to acquire online shoe retailer Zappos in a mostly stock deal currently valued at nearly $980 million. The deal, the largest in Amazon's history, will boost the company's efforts to sell shoes, handbags and other apparel online (Amazon currently sells shoes through its own ecommerce sites and the separate brand Endless.com).

Amazon also ramped up its Kindle business in the second quarter, launching a large-screen version of its electronic reader, the Kindle DX. The company also slashed the price of its Kindle 2 from $359 to $299.

Amazon's second-quarter results took some of the shine off its performance so far in the recession. The company had reported strong growth in profit and revenue in previous quarters as it grabbed market share from competitors.

Amazon gave guidance for the third quarter of 2009, saying it expects sales between $4.75 billion and $5.25 billion (an increase of between 11 percent and 23 percent compared to Q3 2008). The company said it expects $120 million and $210 million (growing between 22 percent and 36 percent).

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