Lovecraft was on the extreme end even for his time, and if you take his whole character into consideration his xenophobia seems to be actually a case of mental illness. He did get better later in life when he met his wife, who was much more cosmopolitan, and moved to New York with her.
Lovecraft was born into a rich New England family, but his father had been in a mental institution since he was 3 and died when he was 8, the family lost most of their wealth, and his mother was suffering from mental problems and depressions as well. He always had bad health and was extremely withdrawn, so for pretty much his entire childhood and youth he had the heritage of his family decaying around him and he seemed to have been suffering from some mental conditions that inhibited social interactions as well. Fear of disease, madness, strangers, and sea creatures are the dominant themes in all his works.
While that doesn't negate the blatant racism in his earlier works, it makes it somewhat comprehensible and tolerable. It doesn't seem that it was as much ideological racism, but actually a clinical phobia of strangers. People who talk, look, and act different from what he was used in New England high society often blend together with actual monsters in some of the stories. When you look out for it, there's a visible change in his later stories, where he shows a much more positive outlook towards both non-English people and some nonhuman creatures. I believe there are even letters in which he admits himself that he isn't normal in that regard and has been struggling with his illogical prejudices, which he know were wrong.
Is it racist? Yes. But I don't see it as expressions of hateful ideology, but of a man with a troubled mind who was afraid of everything that was different from what he was familiar with. With that in mind, I think the stories are still readable and can be enjoyed. But it would be wrong to deny that the racism is there or to trivialize it.
That being said, I find it very strange that The Call of Cthulhu is by far the most well known title of his stories. Given his complete work, this story is neither particularly interesting, nor significant for the overall structure of the world he created. It really should be called the Yog-Sothoth Mythos. Even Shub-Niggurath, Nyarlathotep, and Dagon play much bigger roles as Great Old Ones in the other stories. Cthulhu is just a one-hit-wonder. (Though I think he has more appearances in the works of other writers.
My recommendations would be The Dunwhich Horror, The Shadow over Innsmouth, The Color out of Space, The Case of Charles Dexter Ward, and At the Mountains of Madness. Those are were Lovecrafts legacy really comes to show.