(Reuters) -Home Depot ( HD ) forecast a decline in annual profit and a bigger drop in its annual comparable sales on Tuesday, as hopes of a recovery in demand for home improvement projects fall due to higher borrowing costs.

Shares of the Dow component fell about 2% in premarket trading as the company also reported a bigger-than-expected drop in second-quarter comparable sales.

Big-scale projects such as flooring, kitchen cabinets and bath have been put on the back burner as customers tackled steep inflation.

Higher mortgage rates and home prices have also dented demand and deterred customers from investing in big-ticket home renovation projects.

Home Depot ( HD ) expects annual comparable sales to drop between 3% and 4%, compared with its prior forecast of a decline of about 1%.

"During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend," CEO Ted Decker said.

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.

Comparable sales fell 3.3% compared with expectations of a 1.98% drop, according to LSEG data, while customer transactions fell 1,8%, its 13th straight quarter of drop.

The world's largest home improvement specialty retailer expects diluted earnings per share to decline between 2% and 4%, compared with earlier forecast of a rise of about 1%.

In March, the company bought building materials supplier SRS Distribution in an $18.25 billion deal, which is expected to close in the second half.

Home Depot ( HD ) raised its total sales forecast to between 2.5% and 3.5% and said it expected SRS to add about $6.4 billion.

Excluding items, second-quarter adjusted earnings per share of $4.67 exceeded estimates of $4.49.

(Reporting by Juveria Tabassum in Bengaluru; Editing by Arun Koyyur)