Moody’s downgrades Nike’s senior unsecured rating to A2 from A1

Investing.com -- Moody’s Ratings has downgraded Nike, Inc.’s senior unsecured notes rating to A2 from A1, while maintaining a stable outlook for the sportswear giant.

The credit rating agency also lowered Nike’s senior unsecured shelf rating and senior unsecured Medium-Term Note Program rating to (P)A2 from (P)A1, according to a statement released Wednesday. The Prime-1 commercial paper program rating was affirmed.

Moody’s cited slower-than-anticipated improvement in Nike’s market share and profit margin recovery as key factors behind the downgrade. The company faces ongoing cost pressures including higher tariffs, cautious consumer spending, and intense competition in the athletic wear market.

The rating agency expects Nike’s operating income to begin recovering in Q4 fiscal 2026 but remain below 2018-2019 levels through fiscal 2027. Combined with increased capital expenditures and substantial dividend payments, this is projected to result in reduced cash flow and higher leverage compared to Nike’s historical credit profile.

Despite the downgrade, Moody’s acknowledged Nike’s significant scale, leading market share, global presence, and ownership of one of the world’s most recognized consumer brands. The company’s conservative financial strategies, strong credit metrics, and liquidity were also highlighted as positive governance considerations.

Nike is currently implementing a turnaround strategy under CEO Elliott Hill after what Moody’s described as "2020-2024 strategic missteps." These included overreliance on lifestyle product franchises at the expense of sports innovation, prioritizing digital direct-to-consumer growth over wholesale relationships, and reducing brand-building efforts.

The company’s fiscal 2025 saw a 10% revenue decline and 42% drop in EBIT as Nike cleared excess inventory and revamped product lineups. However, Q1 2026 showed signs of recovery with revenue growth outside China and over 20% growth in running, despite a 28% EBIT decline.

Moody’s projects continued earnings declines in Q2 and Q3 of fiscal 2026 before a gradual recovery beginning in Q4. The agency expects Moody’s-adjusted debt/EBITDA to increase to 2.5x in FY 2026 from 2.1x in Q1 2026, before improving to mid-1x in FY 2027.

The stable outlook reflects expectations for credit metrics improvement in fiscal 2027, driven by earnings recovery and repayment of maturing debt.

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