This morning, Nautilus (NYSE:NLS), the fitness equipment manufacturer, announced that it purchased a fine pearl. Pearl Izumi, that is.

In the press release, Nautilus said it will acquire the privately owned cycling apparel company for $74 million ($68 million in cash and $6 million in assumed debt). So far, the market seems to think Nautilus paid too much for its pearl. Following the announcement, shares have been trading about 4% lower than yesterday's close of $28.50.

Frankly, this Fool doesn't see the logic behind this acquisition.

On a recent teleconference, I listened to DeckersOutdoor (NASDAQ:DECK) CEO Angel Martinez talk about brand permission. At Reebok (NYSE:RBK), he used this concept to significantly grow sales during his tenure as chief marketing officer. According to Martinez, Teva, by virtue of its heritage, has permission to sell products to athletes in outdoor sports such as hiking, kayaking, and trail running. On the other hand, Nike (NYSE:NKE) has had to buy its permission via lots of marketing to sell its ACG products to those same customers.

So what does this mean for Nautilus? Pearl Izumi, by virtue of its heritage, has earned the right to sell products to cyclists. Although I do not buy its cycling products (I eat my own cooking and use Nike products), many of my cycling friends swear by them. But just because it makes great apparel for the road, does that give it the right to enter the gym (provided management chooses to pursue this route, as it alluded to in the press release)? I am not so sure.

Management expects Pearl Izumi to contribute $0.06 to $0.08 per share in earnings in 2006 (the acquisition will be completed later this year). According to the release, Pearl Izumi generated $49 million in sales in 2004 and has been growing at 15% per year since 2001. If we use this data to jump ahead to 2006, Pearl should generate $65 million in sales and about $2.6 million in profits ($0.08 per share times 32.87 million shares). That means profit margins -- net income divided by sales -- are 4%. Granted there could be some acquisition-related charges lowering margins for that year. But as a high-end apparel manufacturer, I would have expected profit margins to be much higher.

As we get more information, maybe things will change. Perhaps Nautilus can open up new sales channels. Perhaps management will use Pearl's apparel technology under new brands. We'll see how it turns out, but on the surface I am not sure how well this Pearl is going to fit inside a Nautilus.

Deckers Outdoor is a Motley Fool Hidden Gems recommendation. Reebok is a Motley Fool Stock Advisor recommendation.

Fool contributor David Meier owns shares of Deckers Outdoor and Nike but does not own shares in any of the other companies mentioned. The Motley Fool has a disclosure policy.