updated 5/19/2009 10:59:45 AM ET 2009-05-19T14:59:45

The Home Depot Inc. said Tuesday that its fiscal first-quarter profit climbed 44 percent on fewer charges, and the nation's largest home improvement retailer beat Wall Street's expectations despite lower sales.

Despite the stronger-than-expected performance, Home Depot's shares fell 5 percent after the retailer opted not to boost its full year outlook. Rival Lowe's Cos. surpassed analysts' estimates with its first-quarter profit on Monday and boosted its full-year outlook.

Atlanta-based Home Depot earned $514 million, or 30 cents per share, for the quarter ended May 3, compared with $356 million, or 21 cents per share, a year ago.

Adjusted profit, which excludes results from its now-closed Expo business, was 35 cents per share, down from adjusted profit of 41 cents a year earlier. Home Depot announced in January that it planned to shutter its 34 Expo Design Centers.

Analysts polled by Thomson Reuters, whose estimates typically exclude one-time items, predicted earnings of 29 cents per share.

Prior-year results included $543 million in charges related to store closings and the shrinking of future store growth plans.

Quarterly sales dropped 10 percent to $16.18 billion as consumers reined in their spending because of the recession, but the results still beat analysts' forecast of $15.86 billion.

Sales at stores open at least a year, known as same-store sales, fell 10.2 percent, with U.S. same-store sales down 8.6 percent. Same-store sales are a key indicator of retailer performance since they measure growth at existing stores rather than newly opened ones.

Home Depot said the number of transactions during the quarter fell 1.3 percent, while the average ticket dropped 8.2 percent to $52.67.

Like the rest of the industry, the Atlanta-based retailer continues to see big-ticket sales fall dramatically because of the recession. That's why sales of electrical material, millwork, lumber and kitchen appliances were far below the company average. It also explains why shopping trips that resulted in sales of $900 or more fell 15 percent while visits of $50 and below held steady.

Gardening popular
Like Lowe's, Home Depot said some of its best-selling items during the quarter were products related to gardening, a popular category as the temperatures began to climb. That included items like fertilizers, seeds and herbs. Meanwhile, sales of items for home maintenance continued to be strong, including caulk, water heaters, and plumbing repair along with supplies for simple home improvement projects, such as paint.

Home Depot also hinted that sales in some western states that were particularly hard-hit by the housing crisis aren't showing continued signs of improvement.

"It's important to emphasize that most of our markets are improving versus last year are only showing a slower rate of decline, not positive comps," Chairman and Chief Executive Frank Blake told investors during a conference call. "Getting to 'less bad' is not the same as getting to recovery."

Home Depot reiterated its forecast for a 7 percent drop in full-year earnings from continuing operations and a sales decline of 9 percent. The retailer anticipates a 2009 same-store sales decline in the high single digits.

Based on prior-year earnings from continuing operations of $2.31 billion and revenue of $71.29 billion, Home Depot is likely to report 2009 earnings of approximately $2.15 billion on sales of about $64.9 billion.

Analysts anticipate full-year profit of $1.35 per share on sales of $65.03 billion.

"There is some likelihood that some investors may be disappointed by the lack of a guidance raise," Raymond James analyst Budd Bugatch told investors in a research note. "That said, management's approach to guidance this year has been very conservative, framed only from a 'point estimate' perspective in this very uncertain economy."

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