Nike (NKE -2.62%) will release its quarterly report tomorrow, marking its first earnings release as a member of the Dow Jones Industrials (^DJI 0.32%). Because of the exit of Alcoa from the Dow, Nike could well take over its role as the company that starts the Dow's earnings season. But amid all the fanfare of Nike's entrance to the Dow, the athletic specialist still has to deliver on earnings and keep its competitors at bay.

Nike became a Dow component because of its longtime dominance in the athletic niche. Its footwear franchise has turned into the worldwide standard against which even its biggest global competitors measure themselves. Yet even with Nike's wide scope in producing athletic apparel and other sports-related products, the rise of Under Armour (UAA -1.18%) as a broad-based threat has challenged the company to keep moving forward. Moreover, niche player lululemon athletica (LULU 0.00%) has demonstrated that Nike can't count on controlling every part of the sporting world. Let's take an early look at what's been happening with Nike over the past quarter and what we're likely to see in its report.

Stats on Nike

Analyst EPS Estimate

$0.78

Change From Year-Ago EPS

22%

Revenue Estimate

$6.96 billion

Change From Year-Ago Revenue

14.3%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Nike earn its place in the Dow?
Analysts have stayed relatively firm in their short-term views of Nike earnings recently, but they've had some doubts about longer-term prospects. They've cut their current fiscal-year estimates by $0.03 per share and their projections for next year by $0.04 per share. But the stock hasn't hesitated to move higher, rising 15% since late June.

Much of Nike's gains came in the wake of the Dow Index Committee's decision to add the shoe giant to the illustrious benchmark. Although the amount of money in ETFs and other index-tracking investment vehicles tied to the Dow is relatively small compared to other benchmarks like the S&P 500, the move generated enough attention to the stock to get many investors who hadn't previously looked at Nike to consider it for their portfolios.

But despite its long-term dominance, Nike faces threats. Under Armour has consistently grown its sales at a 20% clip since the end of the recession, and innovative products that help athletes regulate their body temperature in both hot and cold conditions have given Under Armour the edge in new-product development, and the company has even gone up against Nike in the athletic shoe area with running shoes designed for lightness and comfort. But Nike has fought back against Under Armour's attacks, doing its own research and development to stay on top.

Nike's big advantage over its competitors is its size and marketing presence. Under Armour intends to expand internationally, but it hasn't built much of a foothold compared to Nike's already-impressive brand recognition. Similarly, lululemon has made limited progress in expanding beyond the North American market, and recent quality-control woes could force the yoga specialist to regroup and rebuild customer loyalty in order to avoid a sharp and permanent slowdown in sales growth.

One big opportunity for Nike is in its FuelBand, which has gained attention as mobile-device makers weigh the potential for smart-watches. Building greater functionality into wearable devices with the help of possible future partnerships could vault Nike into the tech arena and give it a new source of growth.

In the Nike earnings report, look especially at the athletic giant's product strategy with respect to athletic-related technology. Adding tech savvy to its functional clothes and shoes could be the next great differentiator for Nike against its rising competition.

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