Moody’s Ratings downgraded Nike, Inc.’s debt ratings, based on the expectation that while Nike’s strategies will drive market share and profit margin recovery over time, the improvement will be slower than previously anticipated due to cost pressures, including higher tariffs, more cautious discretionary spending, and a highly competitive environment.
Moody’s said, “We expect that operating income will start to recover in Q4 fiscal 2026 but remain below 2018-2019 levels in fiscal 2027. Combined with higher capital expenditures and sizeable dividend payments, we expect this to result in diminished cash flow and higher leverage compared to Nike’s historical credit profile.”
Ratings lowered included Nike’s senior unsecured notes rating to A2 from A1, senior unsecured shelf rating to (P)A2 from (P)A1, and senior unsecured Medium-Term Note Program rating to (P)A2 from (P)A1. The Prime-1 commercial paper program rating was affirmed. The outlook was changed to stable from negative.
Moody’s said in its analysis, “Nike’s A2 senior unsecured rating reflects its significant scale, leading share and global presence in the athletic market and ownership of one of the most recognized and valuable consumer brands in the world. Governance considerations also support the rating, including Nike’s conservative financial strategies, strong credit metrics and liquidity. Nike is working to address 2020-2024 strategic missteps, including overreliance on several lifestyle product franchises to the detriment of sports-centric innovation, a focus on digital direct-to-consumer growth at the expense of wholesale relationships, and diminished priority of brand-building in favor of performance marketing.
“The company is undergoing a turnaround under CEO Elliott Hill, including accelerating innovation, aligning the organization and product by sport, impactful marketing, elevating retail and digital experiences, and expanding wholesale relationships as part of an integrated marketplace. In fiscal 2025, revenue declined by 10 percent and EBIT was down 42 percent, as Nike cleared excess lifestyle franchise product and revamped product lineups while continuing to invest in the brand and the marketplace. Despite the 28 percent EBIT decline in Q1 2026, there were clear signs that Nike’s turnaround is gaining traction, including the return to revenue growth outside of China and over 20 percent growth in running. In Q2 and Q3 of fiscal 2026, we project continued earnings declines, reflecting remaining clearance of classic franchises, higher tariffs, and near-term China headwinds. We project a gradual recovery in revenue and earnings starting in Q4 2026, as discounting normalizes and the company’s strategies generate more significant benefits. Reflecting these trends and potential repayment of FY 2027 bond maturities, we expect Moody’s-adjusted debt/EBITDA to increase to 2.5x in FY 2026 from 2.1x as of Q1 2026, before declining to mid-1 time in FY 2027. We also model EBIT/interest expense to decline to 8.8x in FY 2026 from 10.2x as of Q1 2026 and improve to above 12x in FY 2027. However, even as earnings improve, we expect Nike’s cash flow generation to remain constrained by higher capital expenditures and its sizable dividend, which has increased over the past few years.
“The stable outlook reflects our expectations for credit metrics to improve in fiscal 2027, driven by earnings recovery and repayment of maturing debt.”
Image courtesy Nike/Portland
