S&P Cuts Nike to A as China Revenue Deteriorates and Pace Overhaul Drains Cash

S&P downgraded Nike to A with a negative outlook, citing a Greater China demand slump and restructuring costs as cash flow turns negative.

Nike's credit profile just got a little less comfortable. On Monday, S&P Global Ratings lowered the sportswear giant's credit rating from A+ to A, attaching a negative outlook that signals further downgrades could follow if the business doesn't stabilize. The agency pointed to two culprits: a deepening demand slump in China and the heavy costs tied to the company's sprawling restructuring effort.

The numbers behind that caution are sobering. S&P expects Nike to burn through roughly $1.2 billion in free cash flow annually after dividend payments over the next two to three years, with negative cash flow persisting across that stretch. Management still has enough liquidity to keep operations running, but the rating agency made clear that without a durable recovery in the coming quarters, more cuts to the credit score are on the table.

A 26% Currency-Neutral Plunge in Greater China

Nowhere is the pressure more acute than in Greater China. Revenue in the region fell 26% on a currency-neutral basis during the first quarter of fiscal 2027, and S&P projects a roughly 30% decline for the full year. Nike is losing ground to competitors across Asia, and its efforts to clear excess inventory through online channels — pushing retailers toward steeper discounts — have only added to the strain. Gains in sport-specific categories like running and football haven't been nearly enough to offset weakness in core brands such as Jordan.

The broader quarter, which closed on August 31, 2026, saw total revenue slip 4% to $11.21 billion. Gross margin did tick up 60 basis points to 42.8%, but that bright spot was quickly overshadowed by guidance calling for a high-single-digit revenue decline for all of fiscal 2027.

Pace Brings Savings — and a Hefty Bill

CEO Elliott Hill is steering the turnaround under the banner "Pace," a program designed to deliver roughly $2.5 billion in savings by fiscal 2031. Getting there won't be cheap: the initiative carries about $1 billion in pre-tax costs. Hill confirmed Monday that the total headcount will shrink as part of the effort, though Nike has not yet specified how many positions will be cut. Layoffs are expected to begin in 2027.

Structurally, the plan consolidates Nike's global operations from four geographic regions down to three starting in fiscal 2028, alongside the creation of a new campus in India. Faster decision-making is the goal, but the financial payoff won't materialize until later fiscal years.

Analysts Split, Stock Under Pressure

Investors have been voting with their feet. The stock shed 1.9% in German trading on Monday to €29.52, bringing its year-to-date decline to 43%. Friday had already been rough — the shares dropped 3.6% to close at €30.10, and Reuters reported intraday losses of around 8% during early U.S. trading. The stock now sits not far from its 52-week low of €27.91.

Wall Street's reaction has been sharply divided. Barclays' Adrienne Yih reiterated her buy rating on Monday with a $37 price target, while BNP Paribas Exane took a far dimmer view, slapping an underperform rating on the shares with a $19 target. Morgan Stanley trimmed its target from $31 to $27 and kept its underweight stance, and UBS cut its own to $34 while maintaining a neutral rating. Several other firms also pulled in their expectations.

The takeaway for shareholders is a waiting game. As long as demand in Nike's core markets stays soft and restructuring costs keep weighing on cash flow, a meaningful turnaround remains a long way off.