Nike on Thursday announced that its CEO John Donahoe is stepping down and company veteran Elliott Hill is coming out of retirement to take the helm of the sneaker giant.

Donahoe, who has been Nike’s CEO since Jan. 2020, will retire from his position on Oct. 13. Hill is slated to take over on the following day. Donahoe will stay on as an advisor through the end of January.

Shares climbed 8% in extended trading Thursday. As of the close, shares are down more than 25% this year.

“I am excited to welcome Elliott back to Nike. Given our needs for the future, the past performance of the business, and after conducting a thoughtful succession process, the Board concluded it was clear Elliott’s global expertise, leadership style, and deep understanding of our industry and partners, paired with his passion for sport, our brands, products, consumers, athletes, and employees, make him the right person to lead Nike’s next stage of growth,” said Mark Parker, Nike’s executive chairman.

Nike is in the midst of a broader restructuring after it shifted its strategy to sell directly to consumers. Critics say in the process of building out sales at Nike’s own stores and website, it lost sight of innovation and failed to churn out the types of groundbreaking sneakers the company was known for.

In late June when it reported fiscal fourth quarter results, Nike warned that it was expected sales to drop 10% during its current quarter, citing soft demand in China and “uneven” consumer trends across the globe.

The outlook was far worse than the 3.2% decline that analysts had expected. 

Following the rough report, Nike had its worst trading day in history and some analysts speculated that Donahoe would soon be pushed out in favor of a new CEO. At the time, Nike co-founder Phil Knight said the company was standing by Donahoe’s side and the executive had his “unwavering confidence and full support.”

But on Thursday, Knight said in a statement that he is excited to welcome Hill back to the team.

“Leadership changes are never easy, they test you, they challenge you, but this transition has been handled with remarkable thoughtfulness and an unwavering commitment to Nike,” said Knight. “Looking forward, I couldn’t be more excited to welcome Elliott back to the team. His experience, understanding of Nike and leadership is exactly what’s needed at this moment. We’ve got a lot of work to do but I’m looking forward to seeing Nike back on its pace.”

In a statement, Donahoe said it “became clear that now was the time to make a leadership change.”

“Elliott is the right person. I look forward to seeing Nike and Elliott’s future successes,” he said.

Hill, who is currently based in Austin, started at Nike as an intern in the 1980s and first became interested in the company after writing a paper about it for his marketing class in graduate school, according to an interview he gave in 2020.

Over the course of 32 years, Hill worked his way up the chain before becoming president of the company’s consumer and marketplace division where he was resposible for leading all commercial and marketing operations for Nike and Jordan Brand. He was known to be well-liked among employees before retiring in 2020, people close to him told CNBC.

“Nike has always been a core part of who I am, and I’m ready to help lead it to an even brighter future,” Hill said in a statement. “I’m eager to reconnect with the many employees and trusted partners I’ve worked with over the years, and just as excited to build new, impactful relationships that will move us ahead. Together with our talented teams, I look forward to delivering bold, innovative products, that set us apart in the marketplace and captivate consumers for years to come.”

As Nike goes through its current rough patch, it’s trying to get back to the fundamentals that had long defined the business and made it the market leader in sneakers and athletic apparel. In contrast to Nike’s previous leaders, Donahoe was not a retailer and he’d previously helmed companies like eBay and the consulting firm Bain & Company. He was appointed in part for his digital chops so he could help lead Nike through its direct selling strategy, which involved building out robust e-commerce operations and data gathering efforts.

Under Donahoe’s tenure, Nike grew annual sales from $39.1 billion in fiscal 2019 to $51.4 billion in fiscal 2024. During Covid, online sales were booming and the strategy to transform Nike from a brand into a retailer seemed to be working — until the pandemic started to end. As Nike worked to cut off its wholesale partners, it paved the way for a slew of upstart competitors such as On Running and Hoka to take over that crucial shelf space and take market share.

Earlier this year, Donahoe acknowledged that Nike went too far in its efforts to move away from its wholesale partners and said the company was in the process of fixing it. In December, it also announced a broad restructuring plan to reduce costs by about $2 billion over the next three years. It later said it would shed 2% of its workforce, or more than 1,500 jobs, so it could invest in its growth areas, such as running, the women’s category and the Jordan brand.

Jessica Ramirez, senior research analyst at Jane Hali & Associates, said Hill’s appointment is a positive for Nike because of his deep understanding of the company’s culture, which she said is struggling from a morale slump.

“He is up against a tough environment in terms of morale at the company, rebuilding some of that culture that the company has lost,” said Ramirez. “He does have quite some work to do across various teams but I think that’s what needs to be the focus, its culture and therefore, enabling the ability to have better products and newness.”

Retail’s biggest winners during first-quarter earnings aren’t thriving because consumers are suddenly spending more on discretionary goods — it’s because they’re executing well and cash-strapped shoppers are choosing them over competitors. 

If there’s one takeaway from results posted by the largest U.S. retailers over the last few weeks, it’s that shoppers are still spending — but being far more selective about where.

Feeling the brunt of sticky inflation, high interest rates and an economy that feels tougher than it may actually be, consumers are prioritizing purchases that have the right combination of value, convenience and fun.

Companies like Abercrombie & Fitch, TJX Companies and Gap impressed Wall Street with their results, while others like Kohl’s, American Eagle and Target disappointed.

Take Gap and Foot Locker — two unlikely winners that posted results on Thursday. Both retailers are in the midst of ambitious turnaround plans and are performing better than expected because of new strategies they’ve implemented. 

Gap posted positive comparable sales for all four of its brands — Athleta, Old Navy, Banana Republic and its namesake banner — for the first time in “many years,” beating Wall Street’s expectations across the board, the company said. 

For years, Gap had been losing market share to buzzy competitors. But under new CEO Richard Dickson, the marketing guru credited with reviving the Barbie franchise, the apparel chain has focused on financial rigor, brand storytelling and product development. In under a year, Gap’s sales and profits have meaningfully improved, and its brands are beginning to be part of the cultural conversation again.

A few weeks ago, actor Anne Hathaway went to a Bulgari party wearing a white Gap shirt dress that had been designed by the company’s new creative director, Zac Posen. Critically, Gap dropped the $158 dress to consumers, and it sold out within hours. This combination of marketing and exclusive product drops is what Gap had long been lacking, and what competitors had already been doing. 

Foot Locker had declined over the last couple of years, but with the right combination of new strategies and a little bit of luck, its turnaround is showing signs of life. 

Under CEO Mary Dillon, Foot Locker has worked to change its stores, where it does more than 80% of its sales. It has tried to create not only a better shopping experience for consumers but also a better place for its critical brand partners.

Instead of two walls of shoes with competing brands mixed together, Foot Locker is changing its fleet so the brands have their own unique displays. Its new “store of the future” concept at a New Jersey mall that brings that strategy to life has become its best performing store in North America in just a few weeks, Dillon told CNBC, adding that brands are thrilled with the new design. 

The shift couldn’t have come at a better time. Years into Nike’s strategy to cut out wholesalers and sell directly to consumers, the retailer is realizing it went too far and is now changing course.

With refreshed stores and better product displays, consumers are converting more, too, and paying full price — even Foot Locker’s lower-income shopper. 

“Our consumer … this is a category that is very important to them. So when people have discretionary income, it may be limited, but you’re gonna prioritize where you spend it, right?” said Dillon. “We’re proving that people are willing to spend full price, but you have to have the right products and serve it up in a way that makes it enticing, right? So that’s where the whole customer experience really matters.” 

Elsewhere, Dick’s Sporting Goods posted a solid first-quarter report Wednesday, as executives said average selling prices and transactions rose and that they saw no signs of consumers trading down for cheaper options. That may not mean shoppers are spending more broadly, though: Dick’s has long been considered a best-in-class operator that offers a solid shopping experience, meaning it can win even when consumers are picky with their spending.