By Brooke DiPalma

Nike (NKE) is taking a step in the right direction under new CEO Elliott Hill.

The footwear brand posted its fiscal second quarter earnings on Thursday after market close. Its revenue of $12.35 billion bested expectations of $12.13 billion, though it's still a drop compared to the $13.39 billion from a year ago.

Adjusted earnings per share clocked in at $0.78 compared to estimates of $0.63, but also under last year's $1.03.

The earnings report is the first under Hill, who's 60 days into his role as CEO, but spent his entire career at the company before retiring in 2020.

Hill kicked off the earnings call by sharing he believes Nike "lost" its "obsession with sport."

"We will lead with sport and put the athlete at the center of every decision," he said.

His team plans to reinvest in brand storytelling and "build back an integrated marketplace across NIKE Direct and wholesale."

Nike stock was down 3% on Friday before the bell.

In the last year, Nike shares are down more than 36% as the footwear brand lost focus on its products and relationships with distribution partners and now has to contend with the rise of On Holding (ONON), Skechers (SKX), and Hoka (DECK) sneakers.

The earnings breakdown

Here's what Nike posted in the fiscal second quarter, compared to Bloomberg consensus estimates:

Adjusted earnings per share: $0.78 compared to $0.63

Revenue: $12.35 billion compared to $12.13 billion

Nike Brand Revenue: $11.95 billion compared to $11.64 billion

In the quarter, gross margin decreased 100 basis points to 43.6%, mainly due to discounts and changes in channel mix. Product input costs lowered, as did warehousing and logistics costs.

Its revenue from the Nike Brand came in at $11.95 billion, down 7% year over year across all geographies.

Revenue from its direct-to-consumer business, Nike Direct, fell 13% on a reported basis, primarily due to a 21% decline in its digital business and a 2% decline in Nike-owned stores. Wholesale revenues dropped 3% year over year.

CFO Matthew Friend said the company plans to reduce excess inventory to make room for seasonal products and new products for next fall and holiday 2025. Nike Digital will turn toward a full-price model with less promotional activity.

As a result, summer order books will be down versus the prior year, Friend outlined.

"In addition to cleaning up the inventory, there's certainly a margin rate benefit opportunity within Nike Direct to run, albeit a smaller but a healthier and more profitable business," Friend said, adding it has been "capturing demand and competing with our wholesale partners rather than creating and growing demand for our brands."

Hill said Nike plans to invest in its partners and its sales team will "have to earn every open-to-buy dollar," with plans to provide marketing support. That could boost JD Sports (JDSPY), Dick's Sporting Goods (DKS), and Foot Locker (FL).

Next quarter's gross margins are expected to be down approximately 300 to 350 basis points as Nike looks to "clean and to reset the marketplace," Friend said.

Hill has been assessing the damage.

Cristina Fernández of Telsey Advisory Group wrote in a note to clients she expects "cleanup efforts" to carry over to Nike's second half of fiscal year 2025.

"I think we have to accept this is going to take some time," BMO Capital Markets' Simeon Siegel said on Yahoo Finance's Morning Brief prior to earnings. "The trade here is, do you want to believe in hope or are you going to get held down by numbers? And I think the reality is for a company like Nike, hope can be powerful."

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.