Source: Nike.

Nike (NKE -0.74%) reported better than expected sales and earnings for the last quarter on Thursday. The company is clearly firing on all cylinders, while gaining market share in key categories like soccer during the World Cup. Although competitors such as lululemon athletica (LULU -1.26%) and Under Armour (UAA -2.34%) could be relevant risks to watch, Nike is strong enough to continue delivering rock-solid performance over the years to come.

Nike wins again
Total sales during the quarter ended on May 31 increased 11% to $7.4 billion; the number was better than analysts' forecast of $7.34 billion on average. On a currency neutral basis, revenues increased 13% during the period. Future orders grew 11% versus the same quarter in the prior year, or 12% when excluding currency fluctuations, so demand over the next quarters looks quite encouraging, too.

Gross margin increased 120 basis points to 44.8% of sales; however, operating margin was heavily affected by big investments in marketing -- Nike calls it "demand creation expense" -- during the quarter because of the World Cup. Diluted earnings per share increased 3% to $0.78 during the quarter, beating analysts' expectations of $0.75 per share.

Although increased marketing expenses and falling operating margins may be seen as a reason for concern, investors have no need to worry. A unique brand supported by a huge marketing budget is the main differentiating factor for Nike, and a source of competitive strength. Investments in that area create the conditions for sustained growth in the long term, so management is doing the right thing from a strategic point of view.

There are more players wearing Nike shoes in the World Cup than all other brands combined, and more than a third of them are playing in the distinctive Magista or Mercurial Flyknit boots. This is generating strong response from customers, since sales in the soccer segment increased by a solid 21% to $2.3 billion during fiscal 2014.

Management is also optimistic about growth prospects in the running segment, which produced a 10% increase in revenues during the year, to $4.6 billion. Women's products is another key strategic growth area for Nike; revenues in that segment increased 12% to $5 billion during the last year, and management believes the company can achieve $7 billion in women's sales by 2017.

The challengers
Every investment has its risks, and Nike is no exception. The sports apparel and shoes business is quite competitive, and investors may want to keep an eye on innovative players such as Lululemon and Under Armour.

Lululemon was one of the hottest names in the industry a couple of years ago. The company is best known for its yoga products, but it's also expanding materially into areas such as running, a big business for Nike. However, Lululemon is now going through a transition period; the company is trying to recover from quality problems and public relation gaffes that have affected the brand and its sales performance over the last several quarters.

Recent financial performance from Lululemon was not very promising, so whether or not it can recover from past mistakes still remains to be seen. But the company is certainly a relevant player to watch on the high end of the pricing spectrum.

Under Armour is a more challenging competitor than Lululemon at this stage; the company is focused on high-quality sports apparel for various sports, and performance has been nothing short of explosive over the last several years.

Under Armour has delivered compounded sales growth of more than 20% annually for 16 consecutive quarters, and the quarter ended on March 31 was no exception. Under Armour announced a big sales increase of 36% in the first quarter of 2014 to $642 million, and performance was remarkably solid across the company's different segments.

Under Armour is still less than 10% of Nike's size in terms of revenues, but the company is getting bigger at an amazing speed, so investors in Nike need to watch the competitive dynamics between the two companies closely in the years ahead.

Foolish takeaway
Nike has just delivered another winning quarter, and the company looks strong enough to continue capitalizing on growth opportunities in key categories such as soccer, running, and women's products. Although competitors such as Lululemon and -- especially -- Under Armour are important risks to monitor, Nike is still the undisputed world champion in the athletic shoes and apparel industry.