• Nike CEO John Donahoe is retiring from his position and company veteran Elliott Hill is returning to take the top job.
• Donahoe is slated to step down on Oct. 13 but will remain on as an advisor through the end of January.
• Hill worked at Nike for 32 years before retiring in 2020.

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."