Nike Rating Cut as China Slump and Restructuring Hit Cash

Key Moments

Rating Action and Rationale

S&P Global Ratings has reduced Nike Inc’s (NYSE:NKE) long-term credit rating to ‘A’ from ‘A+’, pointing to an extended turnaround period in its key lifestyle categories and pronounced revenue erosion in Greater China. The agency warned that Nike is likely to experience negative cash flow over the next two to three years as restructuring expenses and required reinvestments undermine profitability.

According to S&P, the downgrade captures an operational slowdown that has been more severe than previously modeled, with ongoing inventory dislocation in wholesale channels weighing on performance. The rating firm now anticipates that Nike’s consolidated revenue will fall by more than 7% in fiscal 2027 and weaken further in fiscal 2028. This outlook also incorporates an additional $1 billion in restructuring costs tied to the company’s broad corporate transformation.

China Weakness and Strategic Reset

A sharp reversal in Greater China is a key factor behind the credit rating cut. S&P highlighted a 26% decline in revenue in the region during the first fiscal quarter, and it forecasts that China sales will drop roughly 30% for the full fiscal year. This marks a significant pullback in a market that, at its height, contributed more than 20% of Nike’s total sales.

In response, Nike is overhauling its go-to-market approach in the region in an effort to halt market share losses to domestic players such as Anta Sports. The plan includes regaining control of direct digital channels in early 2027 and deepening collaboration with wholesale partners to strengthen physical store coverage and tailor product assortments to local tastes.

Global Brand Challenges and Competitive Landscape

Outside Asia, Nike continues to face evolving consumer trends across its core lifestyle portfolio, including its Jordan streetwear offerings, which together make up more than 60% of total revenue. While the company has seen high-single-digit growth in performance-oriented athletic categories under its “Sport Offense” initiative, S&P noted that strong competition from niche athletic brands such as On and Hoka is constraining broader recovery.

Financial Position, Liquidity, and Cash Flow Outlook

Despite these operational challenges, Nike retains what S&P describes as a sizable liquidity buffer, totaling $11.4 billion. The rating agency projects an annual cash burn of about $1.2 billion after dividend payments over the coming years. To cover this shortfall, S&P expects Nike to pause share repurchase programs, trim capital expenditures, and draw on cash balances to meet debt obligations maturing through early 2027.

Outlook and Potential for Further Downgrades

The outlook on Nike remains negative, signaling the possibility of additional rating cuts over the next 12 to 24 months if business conditions fail to stabilize or if free cash flow trends deteriorate further. S&P analysts pointed out that any sustained recovery will depend on Nike’s success in revitalizing brand momentum, delivering on its channel restructuring plans, and keeping its adjusted free operating cash flow-to-debt ratio above 25%.