Nikes Under new CEO Elliott Hill, the turnaround will take a little longer than expected. He outlined his strategy Thursday to return the company to growth after the retailer blamed deep discounting for declining sales and profits.

The sneaker giant is relying on promotions to boost sales and plans to move its online business back to a full-price model. But first he must aggressively liquidate old inventory through “less profitable channels,” said Hill and chief financial officer Matt Freund.

“What I’ve seen is that traffic to Nike directly, digitally and physically, has declined because we lack novelty in the products and we don’t provide inspiring stories,” Hill said. “The result is that we have become far too promotional…At the start of the year, our digital platforms delivered roughly a 50/50 split of full price into promotional sales. The level of discounts not only impacts our brand, but also disrupts the overall market and the profitability of our partners.”

As a result, Nike expects gross margins to decline by 3 to 3.5 percentage points in the holiday quarter. It’s also expected to see a low double-digit decline in revenue, which is worse than what analysts surveyed by LSEG expected.

While expectations for Nike’s latest quarter were low before Thursday’s release, the sneaker giant significantly beat Wall Street’s expectations for sales and profit.

Here’s how Nike performed in the second fiscal quarter of 2025 compared to Wall Street expectations, based on an LSEG analyst survey:

• Earnings per share: 78 cents versus 63 cents expected
• Revenue: $12.35 billion versus expected $12.13 billion

Nike shares initially rose sharply after the results, but gave up their gains after Hill gave his opening remarks on a call with analysts.

Nike’s reported net income for the three months ended Nov. 30 fell to $1.16 billion, or 78 cents per share, compared with $1.58 billion, or $1.03 per share, a year earlier.

Revenue fell to $12.35 billion, down about 8% from $13.39 billion a year ago.

Hill, who started at Nike as an intern in the 1980s before leaving the company in 2020, is tasked with turning around the world’s largest sportswear company after it fell behind on innovation, ceded market share to rivals and lost its ownership botched sales strategy.

“I have an irrational love for this company. “I know Nike inside and out, am proud of what the brand stands for and want to see the company succeed,” Hill said in his opening remarks to analysts. “At a time when our team, our brand and our business are facing challenges, my sole focus is on helping us get back on track and back on track.”

In his opening statement, Hill offered a sharp critique of the policies that characterized his predecessor John Donahoe’s tenure as CEO.

He said the company had devoted too many of its resources to boosting online sales, paying for performance marketing and isolating wholesale partners – strategies he now wants to abandon. He acknowledged that key wholesale partners feel Nike has turned its back on these partnerships and said the company is now working to regain their trust.

“We know our sales teams need to earn every dollar available, but we invest to ensure our partners feel supported,” Hill said. “We will do more than just sell our products. We will actively support the sell-through, which is profitable for both sides. Simply put, we will win when our partners win.”

This is good news for partners like Foot Locker, JD Sports And Dick’s Sporting Goodswho rely on Nike products to drive sales.

Hill also voiced a criticism that Nike had been circulating for several years: The company had lost sight of what had long defined the brand – athletes and performance – which resulted in it losing market share to competitors like Asics, On Running etc. was handed over by Hoka.

“We lost our obsession with sports,” Hill said. “We don’t rely on a handful of sportswear silhouettes.”

Hill was apparently referring to the company’s previous decision under Donahoe to focus growth on three key brands: Air Force 1, Dunks and Air Jordan 1. For years, these lifestyle brands drove sales, but Nike made so many shoes that they became commonplace and uncool. Nike is therefore trying to reduce supply, which it says will have an impact on sales in the short term, but hopefully not in the long term.

Last quarter, Nike Store and online sales fell 13%, while wholesale sales fell 3%. Heavy discounting contributed to a 1 percentage point decline in gross margin, which came in at 43.6%, slightly better than the 43.3% expected by StreetAccount analysts.

Inventories, another area of ​​concern, were flat year-over-year at $8 billion. Unit volumes increased, but this was offset by lower product input costs and a shift in product mix.

Still, inventory levels were higher than the company expected, especially given “recent sales trends,” Friend said.

While Nike reported a sales decline in all four regions, results were better than expected in all regions except China, where sales fell 8% to $1.71 billion, below StreetAccount’s expected 1.75 billion US dollars.

In North America, Nike reported sales of $5.18 billion, down 8% but above Street Account’s $5.01 billion forecast. In Europe, the Middle East and Africa, revenue fell 7% to $3.30 billion, slightly ahead of StreetAccount’s $3.26 billion forecast. And in Asia Pacific and Latin America, revenue fell 3% to $1.74 billion, above analysts’ expectations of $1.62 billion.

Converse, which Nike acquired in 2003, also weighed on the company’s overall performance: Sales fell 17% to $429 million in the period, well below the $462.6 million surveyed by StreetAccount analysts expected.

Nike’s move away from Dunks and Air Force 1s, as well as steep markdowns, have also impacted Foot Locker, which missed Wall Street’s sales and profit estimates in its third-quarter report on Dec. 4, in part due to weak demand for Nike products, its CEO Mary Dillon told CNBC at the time.

Since taking the helm a little over two months ago, Hill has racked up a number of wins. The National Football League announced Dec. 11 that it had extended its contract with Nike after briefly courting other bidders. Amid criticism that it has fallen behind on innovation and botched the release of a uniform for Major League Baseball, the NFL’s decision to extend its contract with Nike through 2038 was a major vote of confidence.

Now Nike is the exclusive provider of jerseys for the NFL, MLB and the National Basketball Association.

Shares of Nike are down about 27% in 2024 as of Wednesday afternoon, compared with a rise of about 27% for the S&P 500.