Good morning. Nike held its Q1 2025 earnings call on Tuesday—without its outgoing CEO John Donahoe or its incoming CEO Elliott Hill participating. But the sneaker giant’s CFO, Matthew Friend, was on the call explaining Nike's latest tough quarter and its plans to avert further decline as it goes through transition.

For the three-month period that ended August 31, Nike's revenue declined 10% year over year to $11.6 billion. Nike Direct sales were down 13%. In addition, it had a 20% decline in digital revenue, and wholesale revenue fell 8%. But Nike stores were up 1%.

The company is moving “aggressively” to shift its product portfolio, create better balance in its business, and reenergize brand momentum through sport, explained Friend, CFO since 2020 and with the company for more than 15 years. “That said, a comeback at this scale takes time; and while there are some early wins, we have yet to turn the corner,” he added.

On Wednesday morning, Nike shares fell about 5%, after the company withdrew its full-year guidance and postponed its investor day indefinitely during Tuesday’s earnings call, Fortune reported.

Turnaround headwinds

Four years after his retirement from the sneaker giant, Hill is returning on Oct. 14 taking on the role of president and chief executive, Nike announced on Sept. 19. Working at the company for 32 years, he held leadership positions such as president of its consumer and marketplace business units and leading commercial and marketing operations for the Nike and Jordan brands.

The headwinds that Friend and Hill face in a turnaround for the company include increased competition, a loss of shelf space with some partners, a lack of new products, and difficult economic conditions, David Swartz, senior equity analyst for Morningstar Research Services, told me.

“Nike has been less competitive in running shoes recently as it pulled its products out of too many stores,” Swartz said. However, the company’s competitors have stepped up with high-quality products that have sold well, he explained. Nike has been reducing its supply of some styles of footwear in an attempt to boost pricing.

“There’s a gap in Nike’s lineup as it develops new products while reducing production,” Swartz said. And Nike cannot fix this problem in the short term, especially as demand in China, North America, and Europe remains poor, he said.

Another issue—the popularity of “terrace”-style shoes. “Nike makes these sorts of shoes, but Adidas is bigger in the category,” he added.

‘Returning to the good old days’

Donahoe, CEO since 2020, will become a full-time non-executive employee of the company until he retires on Jan. 31. Under his leadership, Nike had slashed its revenue forecast for the first time ever in December 2023, Fortune’s Phil Wahba reported. And in June, the company cut its revenue forecast again, leading to its biggest-ever stock decline and a $24 billion drop in market cap.

Coming in as CEO, Hill has worked closely with Friend and many other Nike executives, some of whom have recently returned or been promoted, Swartz said.

“In this way, Nike is returning to the good old days when Mark Parker was the CEO,” he said. Hill is well-liked by employees and executives and has strong knowledge of many parts of Nike’s business, Swartz explained. But in contrast, Donahoe, a veteran technology executive and consultant, was an outsider both to Nike and, for the most part, the industry, he said.

Donahoe underestimated the "importance of partners like Macy’s, DSW and Foot Locker in selling its running shoes," Wahba writes. And cost-cutting proved to be his go-to tactic, which only worsened Nike’s problems.

During the earnings call, Friend thanked Donahoe for his contributions to the company, such as leading through the pandemic and supply chain disruption, and accelerating digital transformation.

Meanwhile, Friend said that Hill "leads with a passion that inspires the best from the team."

"It’s fair to say that the partnership between the CEO and CFO should improve under Hill," Swartz said.

And, as CFO, Friend sees the challenges Nike faces as opportunities. “Adversity creates sharper focus, leading to innovation and new growth,” he said on the earnings call.

Sheryl Estrada
sheryl.estrada@fortune.com

The following sections of CFO Daily were curated by Greg McKenna

This story was originally featured on Fortune.com