Reuters Home Depot warned of a decline in annual profit and a bigger drop in its annual comparable sales on Tuesday, as weak discretionary spending dampened expectations of a recovery in consumer sentiment this year.

Customers have delayed big projects such as flooring, kitchen cabinets and bath due to higher borrowing costs and steep inflation, even as higher mortgage rates and home prices hurt new homes sales.

Shares of the Dow component, which had dropped after the results, struggled for direction after softer U.S. producer prices lifted expectations of an interestrate cut in September, which could boost home sales.

Weak new home sales in May and June led to foot traffic dropping 0.4 in July after a 4.3 rise in June, according to data from Placer.ai.

Everyone39;s expecting rates are going to fall. So they the customers are deferring those larger projects, said CEO Ted Decker on a postearnings call.

Comparable sales fell 3.3, steeper than expectations of a 1.98 decline, according to LSEG data, while customer transactions, an indicator of traffic at Home Depot, slipped for the 13th straight quarter.

Home Depot expects annual comparable sales to drop between 3 and 4, compared with its prior view of a nearly 1 decline, while diluted profit per share is expected to drop 2 to 4.

The updated forecast appears reasonableif not conservativeand should derisk the outlook and the stock from here, said Wedbush analyst Seth Basham in a note.

Following the completion the…