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.