Nike's Q2 Preview: Increased Competition, FX Headwinds Create Short-Term Bearishness

The strength of the U.S. dollar could weigh on Nike Inc NKE shares heading into the company's second-quarter earnings release on December 20. Nike has struggled in 2016, with shares down nearly 18 percent year-to-date.

Concerns surrounding increased competition from Under Armour Inc UAA and adidas AG (ADR)ADDYY and a consumer preference shift to more lifestyle-oriented styles have been the primary concerns of Nike shareholders this year.

Consumers have opted for more fashionably athletic styles, notably Adidas, which has performed exceptionally well this year over the performance footwear that Nike has become known for. While Nike does have several notable classic styles in this category, the rise of lifestyle footwear has opened more avenues of competition.

Short-Term Bears

This short-term bearish sentiment could be beneficial for a longer-term contrarian investor, as it has created "a favorable risk/reward for investors with a 12 mos. time horizon" according to analysts at Stifel.

"We remain confident in long-term growth drivers and would view weakness around the quarter related to current sentiment and any FX pressure to guidance as a buying opportunity," Stifel added.

What To Watch For In Q2

• Commentary on North American athletic footwear and apparel trends.
• Future orders growth: The company announced it would disclose futures in greater detail.
• Consumer trends and business outlook in Western Europe and China.
• Direct-to-consumer and e-commerce trends.
• FX impacts to revenue and profitability.

With the fast-changing nature of consumer preferences in the fashion world, this likely will shift back into Nike's favor and a long-term outlook could pay off for investors in the company.

"If the consumer taste pendulum swings from lifestyle towards performance, we would expect NIKE to reclaim share and outpace still robust category growth," concluded Stifel.

Stifel maintains a Buy rating on Nike with a price target of $68.