Nike shares fell after the retailer reported a 10% drop in quarterly sales and warned of weakness in China.

The sneaker giant now expects its fiscal 2025 sales to be down about 5% compared to analysts’ estimates of a 0.9% increase. Nike previously expected sales growth. The company also expects its first-half sales to be down about 5% compared to previous forecasts which called for a decline of about 5%.

“A return to scale like this takes time,” Matthew Friend, the retailer’s chief financial officer, said on a conference call with analysts. “While the next few quarters will be challenging, we are confident that we are repositioning Nike to be more competitive with a more balanced portfolio to drive sustainable, profitable growth over the long term.”

The company cut its forecast due to slowing online sales, the expected decline in brick-and-mortar footwear franchises, “heightened macroeconomic uncertainty” in the Greater China region and “uneven consumer trends” across Nike’s markets, Friend said. He also expects wholesale sales to be slower as it develops new innovations and exits brick-and-mortar franchises.

Shares plunged about 11% in extended trading.

For the fiscal fourth quarter, the company comfortably beat profit estimates as its cost-cutting efforts continued to bear fruit, but Nike failed to generate revenue.

Here’s how Nike performed during the period compared to what Wall Street expected, based on a survey of analysts by LSEG:

• Earnings per share: $1.01 adjusted vs. 83 cents expected
• Income: $12.61 billion versus $12.84 billion expected

The company’s reported net income for the three months ended May 31 was $1.5 billion, or 99 cents per share, compared with $1.03 billion, or 66 cents per share, a year earlier.

Sales fell to $12.61 billion, down about 2% from $12.83 billion a year earlier.

In fiscal 2024, Nike reported revenue of $51.36 billion, flat from the previous year. This is the slowest pace of annual sales growth the company has seen since 2010, excluding the Covid-19 pandemic.

Nike executives attributed the sales miss to a range of factors. They said its lifestyle business declined in the quarter and that momentum in its performance businesses, such as its basketball and running shoes, wasn’t enough to offset it.

Online performance was weak as Nike had a higher share of lifestyle products, more promotions and fewer sales of classic franchises, such as Air Force 1. Traffic in China also declined across all channels from April due to macroeconomic conditions in the region.

Despite the decline in traffic in China, sales in the region beat Wall Street expectations, according to StreetAccount, coming in at $1.86 billion, compared with an estimate of $1.79 billion. It was the only geographic segment to beat expectations for the period.

Sales in North America, its largest market, reached $5.28 billion, below StreetAccount’s expectations of $5.45 billion.

In Europe, the Middle East and Africa, Nike had revenue of $3.29 billion, compared to an estimate of $3.32 billion. In Asia Pacific and Latin America, Nike reported revenue of $1.71 billion, compared to an estimated $1.77 billion.

However, Friend later warned of the “weaker outlook” in China and said that if Chinese marketplace Tmall had not launched the region’s June 18 shopping holiday early, sales in the country would not have lived up to Nike’s internal expectations.

“The Chinese market remains highly promotional and we continue to carefully manage inventory from Nike and our partners,” Friend said. “While our near-term outlook has softened, we remain confident in Nike’s competitive position in China over the long term. »

Nike’s Converse brand once again posted a significant underperformance in overall results. The division saw revenue fall 18% to $480 million, largely due to declines in North America and Western Europe.

In recent months, the historic leader in the sneaker and sportswear sector has found itself in a difficult situation, struggling to stay ahead of a multitude of competitors. Its revenue growth has slowed, the company has been criticized for lagging behind in innovation, and it is reversing its direct sales strategy, which has not produced the results the company expected.

As part of this shift in strategy, Nike had been working to drive sales through its own website and stores rather than through wholesalers like Foot Locker, but it recently began walking back that initiative, telling CNBC in April that it had gone too far in distancing itself from wholesalers.

This strategy can be more cost-effective and give businesses greater control over their brands and customer data, but it can also create logistical challenges and come with unexpected and costly setbacks.

During the quarter, Nike’s direct revenue was $5.1 billion, down 8% from the same period a year earlier. At the same time, wholesale revenue increased 5% to $7.1 billion, reflecting Nike’s shift in focus toward direct sales.

Some analysts say the company’s focus on developing its direct-to-consumer strategy has led Nike to shift its focus away from innovation, the core attribute that had long made the company stand out.

While the retailer produced more and more old favorites, such as the Air Force 1, newcomers like On Running and Hoka wowed runners with all-new designs — and lured them in as customers.

Nike said it would reduce the amount of products it has on the market in favor of new innovations and is betting that a series of new styles, along with the 2024 Paris Olympics, could put the company back on solid footing.

During the company’s conference call, CEO John Donahoe said Nike was accelerating its plans to cut traditional franchise offerings because the brands had performed poorly online, which was expected to hit revenue for the fiscal year. 2025.

“We are meeting our near-term challenges head-on, while continuing to make progress in the areas that matter most to NIKE’s future: serving the athlete through performance innovation, evolving at the pace of the consumer and grow the entire market,” Donahoe said. in a press release. “I am confident that our teams are aligning our competitive advantages to create greater impact for our business.”

Some of Nike’s challenges are also beyond its control. It has had to contend with a tough macroeconomic environment that has seen consumers shy away from sneaker purchases, and it could also find itself on the wrong side of trends. Some analysts expect the athletic category as a whole to face a slowdown this year as denim makes a comeback with consumers and shoppers looking to dress up after years of casual dressing.

In the meantime, Nike has focused on cutting costs so it can at least generate solid profits despite shaky sales.

In December, it announced a major restructuring plan aimed at cutting about $2 billion in costs over the next three years. Two months later, Nike said it was cutting 2 percent of its workforce, or more than 1,500 jobs, so it could invest in growth areas like running, women’s clothing and the Jordan brand.

— Additional reporting by CNBC’s Sara Eisen and Jessica Golden