Nike downgraded to A as China revenue plunge and restructuring weigh on cash flow

S&P Global Ratings has lowered Nike Inc.'s credit rating from 'A+' to 'A', citing operational challenges and weakening financial performance. The downgrade reflects a slower-than-expected turnaround in key lifestyle segments and a sharp decline in Greater China, where revenue plummeted 26% in the first fiscal quarter. S&P forecasts a 30% drop in China revenue for the full fiscal year, a significant setback for a market that once accounted for over 20% of Nike’s total sales.

The rating agency expects Nike’s revenue to shrink by more than 7% in fiscal 2027 and further in fiscal 2028, compounded by $1 billion in restructuring costs. Persistent inventory imbalances in wholesale channels and intense competition from brands like Anta Sports, On, and Hoka are exacerbating the challenges. Nike is restructuring its regional strategy in China, planning to reclaim control over direct digital sales in early 2027 while re-engaging wholesale partners.

Despite these headwinds, Nike’s financial position remains strong, with $11.4 billion in liquidity. S&P anticipates the company will manage its projected $1.2 billion annual cash burn by suspending share buybacks and scaling back capital expenditures. However, the outlook remains negative, with potential for further rating cuts if stabilization efforts fail or cash flow metrics deteriorate further.

To recover, Nike must restore brand relevance, execute its channel realignments, and maintain its adjusted free operating cash flow-to-debt ratio above 25%. The company’s ability to adapt to shifting consumer preferences in its core lifestyle and Jordan streetwear franchises will be critical in navigating these challenges.