Nike on Thursday unveiled plans to cut costs by about $2 billion over the next three years as it lowered its sales outlook.

The stock fell about 12% in premarket trading Friday. Nike shares were up 4.7% so far this year through Thursday’s close, lagging far behind the S&P 500’s gains for the year. Retailer Foot Locker, which has leaned heavily on Nike products, fell about 8% in extended trading.

Nike now expects full-year reported revenue to grow approximately 1%, compared to a prior outlook of up mid-single digits. In the current quarter, which includes the second half of the holiday shopping season, Nike expects reported revenue to be slightly negative as it laps tough prior year comparisons, and sales to be up low single digits in the fourth quarter.

“Last quarter as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign currency translation, consumer demand over the holiday season and our second half wholesale order books. Looking forward, the impact of these risks is becoming clearer,” finance chief Matthew Friend said on a call with analysts.

“This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA. Adjusted digital growth plans are based on recent digital traffic softness and higher marketplace promotions, life cycle management of key product franchises and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago.”

The company still expects gross margins to expand between 1.4 and 1.6 percentage points. Excluding restructuring charges, it expects to deliver on its full-year earnings outlook.

As part of its plan to cut costs, Nike said it’s looking to simplify its product assortment, increase automation and its use of technology, streamline the overall organization by reducing management layers and leverage its scale “to drive greater efficiency.”

It plans to reinvest the savings it gets from those initiatives into fueling future growth, accelerating innovation and driving long-term profitability.

“As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management,” Friend said in a press release.

The plan will cost the company between $400 million and $450 million in pretax restructuring charges that will largely come to fruition in Nike’s current quarter. Those costs are mostly related to employee severance costs, Nike said.

Earlier this month, The Oregonian reported that Nike had been quietly laying off employees over the past several weeks and had signaled that it was planning for a broader restructuring. A series of divisions saw cuts, including recruitment, sourcing, brand, engineering, human resources and innovation, the outlet reported.

The company didn’t immediately respond to CNBC’s request for comment on The Oregonian’s report.

During Nike’s fiscal second quarter, it posted a strong earnings beat, indicating its cost-savings initiatives were already underway. But, for the second quarter in a row, it fell short of sales estimates, which is the first time Nike has seen consecutive quarters of revenue misses since 2016.

Here’s how the sneaker giant performed compared to what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: $1.03 vs. 85 cents expected
• Revenue: $13.39 billion vs. $13.43 billion expected

The company reported net income for the three-month period that ended Nov. 30 was $1.58 billion, or $1.03 per share, compared to $1.33 billion, or 85 cents per share, a year earlier.

Sales rose about 1% to $13.39 billion, from $13.32 billion a year earlier.

Nike is considered a leader among industry peers such as Lululemon, Adidas and Under Armour, but its profits have been under pressure and it has been in the middle of a strategy shift that has seen it rekindle its relationships with wholesalers including Macy’s and Designer Brands, the parent company of DSW.

For the past six quarters, Nike’s gross margin has declined compared to the prior-year period, but the story turned around on Thursday. Nike’s gross margin increased 1.7 percentage points to 44.6%, slightly ahead of estimates, according to StreetAccount.

This time last year, Nike’s inventories were up a staggering 43% and the retailer was in the middle of an aggressive liquidation strategy to clear out old styles and make way for new ones, which weighed heavily on its margins. Several quarters later, however, Nike is in a far better inventory position, which is a boon for margins.

During the quarter, inventories were down 14% to $8 billion.

Nike’s gross margin turnaround came as the retail environment overall has been flooded with steep promotions and discounts as retailers struggle to convince inflation-weary consumers to pay full price. In September when Nike reported fiscal first-quarter earnings, finance chief Friend said Nike was “cautiously planning for modest markdown improvements” given the overall promotional environment.

While the company repeatedly pointed out the overall promotional environment, it said the average sales price of footwear and apparel were up during the quarter and the average selling price grew across channels with higher-priced products proving particularly “resilient.”

The company attributed the gross margin uptick to “strategic pricing actions and lower ocean freight rates,” saying it was partially offset by unfavorable foreign exchange rates and higher product input costs.

As one of the last retailers to report earnings before the December holidays, investors are eager to hear good news when it comes to Nike’s expectations for the crucial shopping season. When many retailers issued holiday-quarter guidance in November, the commentary was largely tepid and cautious as companies looked to under promise and over deliver in an increasingly uncertain macro environment.

Nike struck a note that hit somewhere in the middle. Its sales miss and focus on cost cuts signal larger demand issues, but CEO John Donahoe was upbeat when discussing Black Friday week sales.

“We outpaced the industry, driving growth of close to 10%, Nike digital had its strongest Black Friday week ever and a record number of consumers shopped in our stores over the long Thanksgiving weekend,” said Donahoe.

China is another key part of the Nike story. As the region emerges from the Covid-19 pandemic and widespread lockdowns, China’s economic recovery has so far been a mixed bag. In November, retail sales climbed 10.1% in the region.

It was the fastest pace of growth since May, but those numbers were up against easy comparisons and the growth was largely driven by car sales and restaurants, according to a research note from Goldman Sachs.

During the quarter, China sales came in at $1.86 billion, which fell short of the $1.95 billion analysts had expected, according to StreetAccount. Sales in Europe, the Middle East and Africa also fell short of estimates, but revenue came in ahead in the North America, Asia-Pacific and Latin America markets, according to StreetAccount.

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