S&P Global Ratings lowered its debt ratings outlook on Nike Inc. due to the “longer than expected” turnaround and continued tariff pressures. S&P said, “While we expect tariff pressures to abate in the coming year, profitability will likely continue to erode for at least two more quarters.”

S&P revised its outlook to negative from stable.  The rating agency at the same time affirmed its ‘A+’ long-term issuer credit rating and ‘A-1’ short-term commercial paper rating. The negative outlook reflects the potential for a lower rating over the next 24 months if revenue and profits continue to decline; the Nike brand loses more market share and relevance with consumers globally, or capital allocation becomes more aggressive.

S&P said in its analysis, “Nike’s EBITDA margin and credit metrics have deteriorated amid a turnaround that is taking longer than expected. S&P Global Ratings-adjusted leverage was 0.9x in the 12 months ended Feb. 28, 2026, significantly higher than the 0.4x in the prior 12 months, due mostly to lower EBITDA. S&P Global Ratings-adjusted EBITDA has declined mainly due to tariff-related headwinds in North America pressuring margin, compounded by elevated promotional activity and markdowns. The company also recognized in the quarter $230 million of estimated pre-tax employee severance costs primarily related to organizational changes.

“Total sales for the latest quarter were flat and included declines on a currency-neutral basis at Nike Direct (down 7 percent) and Converse (down 37 percent), as well as 1 percent wholesale growth. Although its turnaround actions should generate some benefits starting in fiscal 2027, they currently weigh on free operating cash flow (FOCF). The company will likely have under $2 billion in FOCF in this fiscal 2026, compared to $3.8 billion a year ago and $7.1 billion two years ago.

“Third-quarter results reflect weak underlying performance amid repositioning actions. Regionally, performance remains uneven, with North America revenues increasing 3 percent on a currency-neutral basis, while Greater China declined 10 percent and Europe, the Middle East, and Africa (EMEA) declined 7 percent. In particular, Greater China is facing intentionally reduced sell-in and marketplace management actions, and a steep 20 percent decline in sales is expected there in the fourth quarter.

“Amid ongoing headwinds from the Win Now actions, we now expect revenue growth to remain muted in fiscal 2026. We expect 2 percent revenue growth in fiscal 2027, driven by benefits from strategic actions, new product innovation, and an improving macroeconomic environment.

“We also expect S&P Global Ratings adjusted EBITDA margin to contract 180 basis points for fiscal 2026 to 10.8 percent, spurred by unfavorable channel mix shift, costs from tariffs, and employee severance costs. We expect EBITDA margins to stabilize at these levels in fiscal 2027. Historically, they were in the 15 percent range.

“Nike has a leading market position, large scale, and a strong balance sheet and cash flow generation. Nike has $1 billion of debt maturities in 2026 and another $1 billion in 2027 that we assume will be refinanced. While not our base case, large shareholder returns could occur if management cannot turn around the business, given the current decline in stock prices, Nike’s sizable excess cash balance, and its lack of a stated financial policy commitment.

“Nike remains the number one sportswear company globally amid a shifting competitive landscape. Despite recent declines, Nike is the clear leader in the global athletic apparel and footwear market and is double the size of Adidas, its next biggest competitor, in certain categories. The company’s innovation capabilities and brand equity have historically led the industry. Although our base case forecast reflects modest credit metric deterioration over the next 12 months, our rating assumes Nike will maintain S&P Global Ratings-adjusted leverage below 1.5x.

“The negative outlook reflects the potential for a lower rating if Nike does not return to profitability growth in the next 24 months through its merchandising, marketing, and digital efforts.”

“We could lower our rating on Nike if:

  • The company undertakes more aggressive shareholder returns or acquisitions or generates persistently lower EBITDA, bringing leverage to above 1.5x;
  • Revenue continues to decline while the Nike brand loses more market share, relevance, and equity due to its inability to remedy its go-to-market strategy; or
  • We revise our business risk profile assessment on the company down because of continued profitability volatility or shrinking of scale across geographies and sports offerings.

“We could revise the outlook to stable if:

  • Nike can restore brand relevance in key categories, sustaining positive revenue and profitability growth and stabilizes adjusted EBITDA margins. This would include more normalized operating levels and execution of channel stabilization; and
  • Nike recaptures market share, with scale, growth trends, margins, and cash flow generation in line with peers rated ‘A+’.”

 Image courtesy Nike