06:57 AM EST, 12/20/2024 (MT Newswires) -- Nike ( NKE ) shares fell early Friday as the sportswear giant flagged revenue and gross margin declines in the fiscal third quarter amid increased transformation efforts, while its results for the preceding three-month period topped market estimates.

The athletic footwear and apparel maker expects revenue to be down by low double-digits in the current quarter, reflecting initial steps on certain strategic actions to reposition the business, as well as deteriorating foreign-exchange headwinds, Chief Financial Officer Matthew Friend said during a late Thursday earnings call, according to a FactSet transcript. Gross margin is forecast to fall by about 300 to 350 basis points as the company plans to "clean and to reset the marketplace," according to Friend.

Shares of the company decreased 3.5% in premarket activity.

The guidance takes into account incremental pressure from Nike's ( NKE ) franchise management initiatives, more aggressive near-term inventory clearance efforts and additional brand marketing investments, Truist Securities said in a client note. The brokerage lowered its price target on the company's stock to $90 from $97.

Nike ( NKE ) plans to shift its digital channel to a full-price model and reduce the percentage of the business driven by promotional activity, Friend said on the call. The company aims to reduce investment in performance marketing, which it expects will ease paid traffic and "require short-term liquidation of excess inventory through less profitable channels," Friend told analysts.

Nike ( NKE ) is seeking to create capacity in the marketplace to sell seasonal newness through additional wholesale discounts to win back shelf space and is targeting a substantial reduction in weeks of supply of its classic footwear franchises over the next few seasons, Friend said. "The net effect of these actions will result in lower revenue, additional gross margin pressure and higher demand creation expenses, with a greater headwind to the fourth quarter compared to the third quarter," the CFO added.

"We believe the outlook may prove conservative, given that this earnings call was (Elliot) Hill's first time addressing investors since taking the helm as chief executive," Truist said. Hill, a former long-time executive at Nike ( NKE ), returned to the company in October to take over as CEO from John Donahoe.

For the three-month period ended November, the company recorded earnings of $0.78 a share, down from $1.03 the year before, but ahead of the Street's view for $0.65. Revenue fell 8% year over year to $12.35 billion, but topped analysts' $12.13 billion estimate.

Revenue for the Nike brand slid 7% to $11.95 billion, weighed down by declines in footwear and apparel. North American sales moved down 8%, while Europe, the Middle East and Africa decreased 7%. Revenue in China fell 8% while Asia Pacific and Latin America declined 3%.

Gross margin fell by 100 basis points to 43.6% mainly due to higher discounts and changes in channel mix, partially offset by lower product input, warehousing and logistics costs, according to the company. Selling and administrative expenses decreased to $4.01 billion from $4.15 billion in the 2023 quarter.