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 10% after hours. 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 4% after hours.

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, it 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.

“This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA, adjusted digital growth plans based on recent digital traffic softness and higher marketplace promotions, lifecycle management of key product franchises and a stronger U.S. dollar that has negatively impacted second half reported revenue versus 90 days ago,” finance chief Matthew Friend said on a call with analysts.

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

Nike plans to simplify its product assortment, increase automation and its use of technology, streamline the overall organization and leverage its scale “to drive greater efficiency,” the company said in a news release when announcing fiscal second quarter earnings.

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 $400 million to $450 million in pre-tax 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 return a 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.

Here’s how the sneaker giant performed compared with 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 with $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 like Lululemon and Under Armour, but its profits have been under pressure and its been in the midst of a strategy shift that’s seen it rekindle its relationships with wholesalers like Macy’s and Designer Brands, the parent company of DSW.

This time last year, Nike’s inventories were up a staggering 43% and the retailer was in the midst 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 Matthew Friend said Nike was “cautiously planning for modest markdown improvements” given the overall promotional environment.

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.

China is another key part of the Nike story. As the region emerges from the Covid 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 comparables 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 that analysts had expected, according to StreetAccount. Sales in Europe, 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.

Read the full earnings release here.

This is a developing story. Check back for updates.