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Investing.com -- Adidas AG (ETR:ADSGN)’s credit rating has been upgraded to ’A’ from ’A-’ by S&P Global Ratings, following the company’s stronger-than-expected deleveraging and solid operating performance. The rating agency also upgraded the short-term issuer credit rating to ’A-1’ from ’A-2’. The outlook remains stable, indicating that Adidas (OTC:ADDYY)’ credit metrics are expected to remain solid.
Adidas has consistently reported solid revenue growth, profitability, cash flows, and credit metrics above expectations, thanks to positive business momentum across all regions, channels, and product categories. After a strong 2024, with revenue growth of 13% and a gross margin of 50.8%, the company’s performance remained robust in the first quarter of 2025, with net sales growing at 17% year-on-year and a gross margin of about 52.1%.
Despite an uncertain macroeconomic environment, Adidas is expected to report increased revenue of about 8%-9% in 2025 and 2026. This is due to stronger-than-anticipated brand momentum, supportive trends within the sportswear category, and potential modest price increases for 2025. Adidas has reaffirmed its guidance of reported operating profit of €1.7 billion-€1.8 billion and confirmed a net leverage target of below 2x.
S&P Global Ratings expects Adidas’ adjusted EBITDA to reach €2.9 billion-€3.0 billion in 2025 and to approach €3.2 billion the following year. This, along with expected annual free operating cash flow (FOCF) before leases of €1.3 billion–€1.5 billion, should lead to an S&P Global Ratings-adjusted debt-to-EBITDA ratio approaching 1.0x during 2025 and 2026, down from 1.4x posted in 2024.
The rating upgrade reflects Adidas’ stronger-than-expected deleveraging trend, driven by the group’s sustained momentum in its underlying operating performance and cash flow generation improvements. The company continues to benefit from low double-digit sales growth across all markets and channels, supported mainly by the footwear category, the direct-to-consumer channel, and a strong order book with wholesale partners.
Adidas is expected to post €25.0 billion-€26.0 billion revenue at the end of 2025, and €27.5 billion-€28.5 billion at the end of 2026. The group is expected to continue benefiting from positive consumer demand in Adidas’ established football category, a strong pick up in running, and good prospects for training and many other performance categories.
The company’s stronger-than-expected cash flow generation is expected to significantly improve Adidas’ credit metrics, with S&P Global Ratings-adjusted debt to EBITDA expected to remain comfortably below 1.5x in 2025 and 2026. This is a substantial improvement over the previous base case, when adjusted leverage was expected to be around 1.8x in 2025 and approaching 1.7x by 2026.
U.S. tariffs represent one of the major downside risks to the existing base case, as the majority of Adidas’ products are manufactured in Southeast Asia countries. For the North American market, Adidas’s footwear production comes about one-third from Vietnam, one-third from Indonesia, and the remaining third comes from other countries, with China accounting for about 3% of total sourcing.
In April 2025, the U.S. government announced large tariff increases for products imported to the U.S. from several countries, including Vietnam, Indonesia, and Cambodia. These tariff increases are currently suspended until July 8, 2025, while trade negotiations are ongoing. Adidas’ guidance for 2025 factors in the current 10% tariff increase and does not assume further pressure coming from tariff changes.
S&P Global Ratings could lower the rating if Adidas posts adjusted debt to EBITDA above 2x without short-term prospects of deleveraging. This could happen if the group experiences significant slowdown in its core categories with loss of market shares, coupled with disruptions from additional U.S. tariff implementation and higher-than-expected discretionary spending. A positive rating action could be taken if Adidas’ operations continue to strengthen, leading to a material increase in the size of the group’s underlying business and annual FOCF generation.
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