Shares of Dow component Nike (NKE) are tumbling after the company released its latest earnings report.

The company beat analyst estimates for earnings and sales, but its profit margins took a hit from markdowns to clear out excessive inventory. Higher freight costs and a stronger dollar also weighed on Nike profits.

The athletic gear giant reported fiscal first quarter net income of $1.5 billion or 93 cents a share. Analysts had expected earnings of 92 center per share. Sales came in at $12.7 billion, compared with analyst estimates of $12.2 billion.

Gross margins at Nike fell to 44.3% from 46.5% a year ago. Nike executives said the decline was primarily in North America as the company had to liquidate excess inventories through is direct-to-consumer sales unit, Nike Direct. Inventories at Nike stood at $9.7 billion, a 44% increase from the year-earlier period because of what executives described as supply chain problems. 

Total sales for Nike in Greater China were down 16% to about $1.7 billion, compared to $2 billion a year ago as sales were impacted by COVID-19 lockdowns. Total sales in North America increased by 13% to $5.5 billion compared to $4.9 billion a year ago, as U.S. demand remained resilient despite rising inflation.

Nike shares fell over 12% in early trading on Friday, leading losses on the Dow Jones Industrial Average. They have lost nearly half of their value so far this year.