Adidas credit rating upgraded to 'A' by S&P Global Ratings due to strong performance

S&P Global Ratings upgraded Adidas AG's credit rating to 'A' from 'A-' citing stronger-than-expected deleveraging and solid operating performance, with a stable outlook reflecting expectations for continued solid credit metrics. Adidas has shown robust revenue growth, profitability, and cash flow, reporting 17% net sales growth and a 52.1% gross margin in Q1 2025, leading to adjusted debt-to-EBITDA expected to approach 1.0x in 2025-2026. While U.S. tariffs pose a downside risk, Adidas' 2025 guidance already factors in current tariff levels.

Analysis

S&P Global Ratings has upgraded Adidas AG's long-term credit rating to 'A' from 'A-' and its short-term rating to 'A-1' from 'A-2', assigning a stable outlook, primarily due to the company's stronger-than-expected deleveraging and robust operating performance. Adidas has demonstrated consistent financial strength, evidenced by 13% revenue growth and a 50.8% gross margin in 2024, followed by an accelerated 17% year-on-year net sales growth and a 52.1% gross margin in Q1 2025. This performance is attributed to positive business momentum across all regions, channels, and product categories, particularly footwear and the direct-to-consumer channel. The company anticipates revenue growth of 8%-9% for 2025 and 2026, supported by strong brand momentum and favorable sportswear market trends, while reaffirming its operating profit guidance of €1.7 billion-€1.8 billion and a net leverage target below 2x. S&P projects Adidas’ adjusted EBITDA to reach €2.9 billion-€3.0 billion in 2025, with adjusted debt-to-EBITDA expected to approach 1.0x during 2025-2026, a significant improvement from 1.4x in 2024 and better than previous forecasts. Expected annual free operating cash flow of €1.3 billion–€1.5 billion will support this deleveraging. Projected revenues are €25.0 billion-€26.0 billion for 2025 and €27.5 billion-€28.5 billion for 2026. A key potential headwind involves U.S. tariffs on products from Southeast Asia; while Adidas's 2025 guidance incorporates the current 10% tariff, further increases, currently suspended until July 8, 2025, could pose a risk.

Key Decisions for Investors

• Consider the positive implications of S&P's credit rating upgrade to 'A' with a stable outlook, as it underscores Adidas's enhanced financial stability and strong operational execution.
• Evaluate the robust financial metrics, including 17% net sales growth in Q1 2025 and an S&P adjusted debt-to-EBITDA ratio projected to approach 1.0x, which signals effective deleveraging and sustained business momentum.
• Closely monitor developments regarding U.S. tariffs on goods imported from Southeast Asia, as any material escalation beyond the currently anticipated 10% could negatively impact Adidas's profitability and outlook.
• Factor in Adidas's reaffirmed operating profit guidance of €1.7 billion-€1.8 billion and net leverage target below 2x as a baseline for assessing future performance, contingent upon managing macroeconomic conditions and tariff impacts effectively.