Over the weekend, Kevin Durant (KD) reportedly signed a deal with Nike (NYSE:NKE) worth $300 million over 10 years. The deal with Nike exceeds the offer previously made by Under Armour (NYSE:UA) to attract the MVP of the NBA to ramp up sales of the small basketball shoe division at the athletic-apparel company. Durant had just concluded a seven-year deal for $60 million with Nike and original suggestions were that the world's largest sporting goods company wouldn't match the speculated $265 million to $285 million offer from Under Armour.
With Under Armour looking to ramp up sales in basketball shoes and women's apparel, the news over the holiday weekend wasn't all bad with Gisele Bundchen, world's top earning model, signing with the company to boost the appeal to female shoppers. The company released a video via YouTube suggesting that new products were coming Sept. 4.
The original investment thesis in the article "Why Under Armour Needs Kevin Durant" suggested that Under Armour lost out on the potential to dramatically improve sales for both basketball and internationally where the NBA is huge. In addition, the Nike numbers suggest that basketball and footwear are more important categories with more upside potential. The company already obtains 30% of revenue from women suggesting the division isn't lacking. Short-term the earnings might provide an upside by losing out on Kevin Durant and the high costs, but long-term the NBA scoring leader and MVP has the potential to compete effectively with the Jordan brand from Nike that dominates basketball shoes. With the stock up 3% on the news and trading at close to 60x forward earnings, investors should avoid the stock until some of the excitement disappears.
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