Nike downgraded by S&P as profitability slides, tariff pressures mount

Investing.com -- S&P Global Ratings has downgraded Nike Inc (NYSE:NKE) to ’A+’ from ’AA-’ on concerns over declining margins, ongoing tariff exposure, and a prolonged turnaround effort. The downgrade comes amid strategic shifts following the abrupt departure of former CEO John Donahoe in 2024 and a renewed focus under current CEO Elliott Hill.

The stable outlook reflects S&P’s expectation that Nike will maintain sub-1.0x leverage over the next 24 months despite near-term profitability challenges. The agency cited a significant decline in Nike’s financial metrics, noting that adjusted leverage ticked up from 0.2x to about 0.5x in fiscal 2025, largely due to weaker earnings performance more than elevated debt levels.

Nike’s profit pressures stem not only from execution missteps but also from external challenges such as rising import tariffs. U.S. tariffs on footwear imports from China and Vietnam could add as much as $1 billion in gross incremental costs, pressuring Nike’s margins further, particularly in the first half of fiscal 2026.

To address these pressures, Nike is adjusting its supply chain and pricing strategy. The company plans to reduce its U.S. footwear imports from China to the high single-digit range by 2026 while executing a phased price increase across key categories starting in fall 2025.

Nike’s “Win Now” strategy aims to reset its product mix and channel strategy to regain lost market share and profitability. It includes a renewed focus on performance categories such as running, training, and basketball and a geographic concentration on the U.S., China, and the U.K., alongside five global cities.

Despite the broader market retreat, Nike maintains a commanding lead in the global athletic market, with competitive advantages in scale and product innovation still intact. Still, the company is facing intense competition from faster-growing rivals including Hoka, OnRunning, and Lululemon (NASDAQ:LULU), all of whom gained market share during Nike’s recent pullback from wholesale channels.

Inventory management remains central to Nike’s near-term recovery efforts. First-quarter fiscal 2026 revenues are expected to decline in the mid-single-digit range, with gross margin potentially down as much as 425 basis points due to inventory liquidations and reduced demand in digital channels.

While a rebound could materialize in the second half of fiscal 2026, S&P said that any upside to Nike’s rating would hinge on a strong and sustained recovery in profitability, market presence, and brand relevance. Until then, the company’s trajectory remains firmly in the ‘A’ category.