RETAIL EARNINGS / HOME DEPOT

Home Depot Inc. posted a 44% increase in its first-quarter profit Tuesday but didn’t live up to the market’s high expectations a day after rival Lowe’s Cos. Inc. boosted its full-year outlook.

The volatile housing market continued to drag down revenue and hurt business in states with the highest foreclosure rates, Home Depot said -- taking a decidedly less optimistic view than its chief competitor, whose own results Monday helped lead a market rally.

“Getting to ‘less bad’ is not the same as getting to recovery,� Chairman and Chief Executive Frank Blake said.

Home Depot, which is based in Atlanta, is much more dependent on foreclosure-riddled California, with 12% of its stores operating in the state compared with 6% of Lowe’s.

“California matters to us,� said Home Depot Chief Financial Officer Carol Tome. “It really did impact sales.�

Home Depot sales at stores open at least a year, known as same-store sales, fell 10.2%, with U.S. same-store sales down 8.6%. Same-store sales are a key indicator of retailer performance because they measure growth at existing stores rather than at new ones.

Lowe’s comparable sales fared better, falling 6.6% in the U.S. in the first quarter.

Home Depot said its first-quarter profit climbed 44% -- but most of that increase came because it recorded fewer one-time items during the quarter than it did during the same period last year.

Home Depot earned $514 million, or 30 cents a share, for the three months that ended May 3, up from $356 million, or 21 cents, a year ago. Adjusted profit, which excludes results from the now-closed Expo business, was 35 cents a share. Home Depot had announced in January that it was planning to close its 34 Expo Design Centers.

Analysts polled by Thomson Reuters expected a profit of 29 cents a share. Sales for the quarter fell 10% to $16.18 billion.

Even with the stronger-than-expected performance, Home Depot maintained its full-year forecast for a 7% drop in earnings from continuing operations and a 9% drop in sales.

Home Depot shares fell $1.39, or 5%, to $24.63, while Lowe’s rose 11 cents to $20.05.