Nike Inc (NKE  ) shares are falling Monday as S&P Global Ratings downgraded its credit rating on Nike to A from A+, with a negative outlook. Here's what you should know.

S&P Downgrades Nike's Credit Rating

S&P cut Nike's long-term issuer credit rating and its unsecured debt ratings to A from A+. S&P now sees the recovery taking much longer, especially in China and in the Nike sportswear and Jordan lines. Those lines generate more than 60% of revenue, and wholesalers are sitting on excess inventory. S&P projects far weaker revenue, profit and cash flow over the next two years than it assumed before.

Management unveiled a cost-cutting program that will add $1 billion in restructuring charges over the next three years. S&P warned that simultaneous leadership and board changes could slow Nike's push to rebuild profit and cash flow.

China is a major pressure point. Revenue there dropped 26% in the first fiscal quarter, and S&P forecasts a fall of about 30% for fiscal 2027. S&P said heavy discounting, fierce competition, poor digital execution and too little culturally relevant innovation contributed to the decline.

Nike Faces Cash Burn, Higher Leverage and a Negative Outlook

Those pressures show up in S&P's projections:

  • Revenue: down more than 7% in fiscal 2027 and lower again in fiscal 2028
  • Leverage: rising to 1x at the end of fiscal 2027 and 1.4x in fiscal 2028, by S&P's measure
  • Cash burn: roughly $1.2 billion a year for the next two to three years, after dividends
S&P counts about $11.4 billion in liquidity to cushion that burn. It expects Nike to suspend share repurchases and delay growth-related capital spending.

The negative outlook means S&P could cut the rating again within 12 to 24 months. That would happen if Nike shows no progress stabilizing the business or if free operating cash flow falls below 25% of debt. A stable outlook would need stabilization progress, cash flow at 25% of debt or more, restored brand relevance and recaptured market share.

NKE Shares Are Moving Lower

NKE Price Action: Nike shares were down 0.35% at $33.72 at the time of publication on Monday. The stock is well off its lows for the session, according to Benzinga Pro.

Lululemon Athletica Inc (LULU  ), a direct peer of Nike, is also trading lower Monday. Lululemon shares were down 2.29% at $92.38 at the time of publication on Monday. The stock is trading at a new 52-week low.