Under the stewardship of new CEO Elliott Hill, Nike Inc. (NKE) is embarking on a strategic redirection. The athletic footwear and apparel giant reported its financial results for the second quarter of the fiscal year on Thursday, post-market close.

The company's revenue reached $12.35 billion, surpassing analyst predictions of $12.13 billion, although this figure represents a decrease from the $13.39 billion recorded in the same period the previous year. The adjusted earnings per share were $0.78, which was higher than the expected $0.63 but below the $1.03 reported in the prior year.

This financial report marks the first under Hill's leadership, who, despite having retired in 2020, has spent his entire career at Nike and is now 60 days into his tenure as CEO. Hill commenced the earnings call by acknowledging that Nike had strayed from its "sport obsession," stating, "We will lead with sport and place the athlete at the heart of every decision." His team's strategy includes reinvesting in brand storytelling and rebuilding an integrated marketplace that encompasses both Nike Direct and wholesale channels.  

In the past year, Nike's stock has plummeted by over 36%, as the company lost focus on its products and relationships with distribution partners. This decline has coincided with the rise of competitors such as On Holding (ONON), Skechers (SKX), and Hoka (DECK). Here's a detailed breakdown of Nike's fiscal second-quarter performance compared to Bloomberg consensus estimates:

• Adjusted earnings per share: $0.78 versus the expected $0.63    
• Revenue: $12.35 billion versus the expected $12.13 billion  
• Nike Brand Revenue: $11.95 billion versus the expected $11.64 billion

During the quarter, the gross margin dipped by 100 basis points to 43.6%, primarily due to increased discounts and changes in channel mix. Product input costs and warehousing and logistics expenses were both reduced. Revenue from the Nike Brand totaled $11.95 billion, a 7% decrease year over year across all regions.

The company's direct-to-consumer segment, Nike Direct, saw a 13% decline in revenue on a reported basis, mainly attributed to a 21% drop in its digital business and a 2% decrease in Nike-owned stores. Wholesale revenues also experienced a 3% year-over-year decline.

CFO Matthew Friend disclosed that Nike intends to reduce excess inventory to accommodate seasonal and new products for the fall and holiday seasons of 2025. Nike Digital will shift towards a full-price model, reducing promotional activities. As a result, summer order books are expected to be lower than in the previous year. Friend elaborated, "In addition to addressing the inventory, there's a clear opportunity to improve the margin rate within Nike Direct, even if it means operating a smaller but more robust and profitable business." He added that the company has been "capturing demand and competing with our wholesale partners rather than fostering and expanding demand for our brands."

Hill indicated that Nike plans to invest in its partnerships and that its sales team will "need to earn every open-to-buy dollar," with marketing support planned to bolster partners such as JD Sports (JDSPY), Dick's Sporting Goods (DKS), and Foot Locker (FL).

Gross margins for the next quarter are anticipated to decrease by approximately 300 to 350 basis points as Nike aims to "clean and reset the marketplace," according to Friend. Hill has been assessing the situation and understanding the challenges at hand.

Cristina Fernández of Telsey Advisory Group noted in a client communication that she anticipates "cleanup efforts" to extend into the second half of Nike's fiscal year 2025. BMO Capital Markets' Simeon Siegel commented on Yahoo Finance's Morning Brief prior to the earnings release, stating, "I think we have to accept that this will take some time. The trade here is whether you want to believe in hope or be weighed down by numbers. For a company like Nike, hope can be a powerful force."

As Nike navigates this strategic shift, investors and market watchers will be closely monitoring the company's progress and the impact of these changes on its financial performance and market position.