Investing.com -- S&P Global Ratings has downgraded Nike Inc's (NYSE: NKE) credit rating to ‘A’ from ‘A+’, citing a prolonged turnaround trajectory across its key lifestyle segments and severe top-line deterioration in Greater China. The rating agency cautioned that the apparel giant faces negative cash flow generation over the next two to three years as restructuring costs and necessary reinvestments weigh heavily on profitability.

The downgrade reflects a sharper operational slowdown than credit analysts had previously anticipated, driven largely by persistent inventory imbalances in wholesale channels. S&P expects Nike's consolidated revenue to contract by more than 7% in fiscal 2027 and weaken further in fiscal 2028, compounded by an incremental $1 billion in restructuring charges tied to an ongoing corporate overhaul.

A steep downturn in Greater China remains a central driver of the credit action, highlighted by a 26% top-line plunge in the first fiscal quarter. The rating agency forecasts China revenue to fall approximately 30% for the full fiscal year, representing a dramatic retreat for a geographic market that generated more than a fifth of total company sales at its peak.

To stem market share erosion against agile domestic competitors like Anta Sports, Nike is restructuring its regional go-to-market model. The strategy involves reclaiming control over direct digital channels in early 2027 while re-engaging wholesale partners to reinforce physical storefront presence and localized product design.

Beyond Asia, Nike continues to contend with shifting consumer preferences in its core lifestyle and Jordan streetwear franchises, which account for over 60% of total revenue. While dedicated category pivots under its "Sport Offense" strategy generated high-single-digit growth in performance athletic lines, intense competition from specialized brands like On and Hoka continues to limit overall momentum.

Despite operational headwinds, Nike maintains a substantial balance sheet cushion anchored by $11.4 billion in total liquidity. S&P expects the firm to absorb its projected $1.2 billion annual cash burn after dividend outlays by suspending share buybacks, scaling back capital expenditures, and utilizing cash reserves to satisfy upcoming debt maturities through early 2027.

The negative outlook underscores the potential for further rating cuts over the next 12 to 24 months if business stabilization stalls or free cash flow metrics weaken further. Analysts indicated that a recovery hinges on Nike's ability to restore brand relevance, execute its channel realignments, and maintain its adjusted free operating cash flow-to-debt ratio above 25%.

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