Following in the footsteps of its major competitor, Home Depot Inc. posted better-than-expected net earnings in its fiscal first quarter despite consumers feeling the squeeze of the recession. The retailer’s stock, however, closed down 5.5 percent Tuesday.

The Atlanta-based home improvement retail titan earned $514 million, or 30 cents per diluted share, for the quarter ended May 3. That’s up from the year-earlier period when it earned $356 million or 21 cents per diluted share.

Profits jumped due to the retailer slowing its expansion plans and the closing of its struggling Expo Design Centers, Morningstar Inc. analyst Brady Lemos said in an interview. The retailer won’t have those one-time cost cuts in the future, he said.

Analysts polled by Zacks Investment Research Inc. expected the company to earn 29 cents per diluted share.

Although results beat expectations, Lemos said those estimates were low from the start.

Home Depot’s sales fell 9.7 percent to $16.2 billion from $17.9 billion in the year-earlier period. The weakness in its Canadian operations and the gloomy housing market weighed on the results.

Lemos said that although he is confident in the company’s long-term outlook because of the potential that Home Depot has on “gaining market share in a category that’s going to be shrinking in a few more quarters.” However, since short-term results are highly dependent on housing turnover, the near future looks grim, he said.

“We remain concerned that Home Depot’s operations will be pressured by a weak housing market, rising unemployment, and tight credit conditions,” Lemos said in a research note.

The Department of Commerce reported Tuesday that the number of housing starts plunged to a record low in April, declining 12.8 percent from March. Last week, the department reported that April retail sales slipped 0.4 percent from March, a sign that consumers are still being tight-fisted.

“The pressure on the [customer’s] ticket comes from the softness in construction and discretionary [spending] categories,” Craig Menear, executive vice president of merchandising said in a conference call Tuesday.

Home Depot is also battling the challenge of mounting foreclosures in the western U.S..

“One out of every 54 households in California is in foreclosure,” Frank S. Blake, chairman and chief executive officer, said during the call. “That’s the highest it has ever been, and before we see real improvement, we believe we need to see sustainable deceleration in foreclosures.”

On Monday Lowe’s Cos. posted a 22 percent decline in its fiscal first-quarter earnings but, like Home Depot, beat analysts’ expectations.

Home Depot maintained its fiscal 2009 guidance of a 9 percent drop in revenues and a 7 percent decline in earnings per share from continuing operations. It also still sees negative comparable store sales in the high single digits.

Chief Financial Officer Carol B. Tome said during the call that May is trending better than April on an Easter-adjusted basis and that the retailer expects improvement in the second quarter.

Home Depot’s stock closed Tuesday at $24.60, down $1.42 from Monday’s close of $26.02.