Nike Inc.

Overview Key strengths Key risks Strong geographic and channel diversity. Concentrated in a single brand that accounts for roughly 95% of its total revenue. Strong product innovation and growing direct-to-consumer (DTC) segment support above-average margins. Substantial control exercised by the Knight family. A change in ownership could alter the company's strategic direction and financial policies. Robust free operating cash flow (FOCF) generation. Geopolitical and macroeconomic risks can dampen consumer confidence and reduce demand. Consistently low S&P Global Ratings-adjusted leverage of less than 1x. COVID-19-related supply chain disruptions. Nike?s inventory declined 10% in the first quarter of 2024, in-transit inventory has normalized, and inventory days have improved as the company continues to work through elevated levels from last year?s supply chain

...Nike's inventory is in a healthier position. Nike's inventory declined 10% in the first quarter of 2024, in-transit inventory has normalized, and inventory days have improved as the company continues to work through elevated levels from last year's supply chain issues. Given a weaker macroeconomic environment, the company is taking a lean approach to inventory management including restraining its first half sell-in. Operating cash flow (OCF) is negative for the first quarter, which is typically its weakest cash generating quarter but nonetheless a departure from its normal operating results. Nike intends to still lead with technology and innovation and is not pulling back on brand support or investment. However, given macroeconomic headwinds and pressure on discretionary purchases, it remains to be seen whether consumers trade down to other brands or if they only buy on-sale products during this weaker economic cycle. Despite these challenges, we expect the company's credit metrics will...

Full Report