FIGS, Inc. (FIGS) Earnings Call Transcript & Summary

Thank you. I'll turn mine a little bit. Yes, it's working. Great. We're good to go. Okay. Okay. Good afternoon or good morning. I guess it's still morning, maybe moving into afternoon. I always like, this is my favorite part of kind of having companies come to the conference doing the fireside chat. I'm Adrienne Yih. I am the Barclays Specialty Retail Apparel and Footwear Analyst, and it is my extreme pleasure to welcome Trina Spear, Co-Founder and Chief Executive Officer of FIGS and Sarah Oughtred, Chief Financial Officer. I think it's always really important to understand the management backgrounds and bios. And so I'll start with Trina. So Trina co-founded FIGS in 2013 with Heather Hasson. She's led the company from an entrepreneurial disruptor in healthcare apparel through its 2021 initial public offering and today into one of the most recognized and trusted brands serving healthcare professionals globally. Under her leadership, FIGS has built a unique combination of product innovation, community engagement, and brand affinity that has helped redefine an entire category. Sarah Oughtred joined FIGS in 2024 as Chief Financial Officer after a 17-year career at Lululemon and has been instrumental in scaling the company's financial discipline and profitability while helping support growth initiatives across customer acquisition, international expansion, enterprise partnerships, and category diversification. So I've always found FIGS to be one of the more fascinating stories in retail, because on the surface, investors view it as a scrubs company. But when you dig deeper, this is really a discussion about building a category-defining brand, creating a highly engaged professional community, expanding wallet share with a loyal customer base, and building a platform serving healthcare professionals around the world. So with that introduction, before we get into FIGS, I always like to set sort of the macro backdrop. And so let's talk about, Trina, how would you characterize the health of the U.S. consumer today relative to your guidance at the beginning of the year, six months ago? What's getting better, what's getting worse, and what do you think maybe misunderstanding about the consumer, specifically your consumer?

Well, thank you so much, Adrienne. What a pleasure. What an intro. That was amazing. It's so exciting to be here, and thank you for taking the time. Thank you for all being here today. Yes, so I think we're in an interesting space, right? We don't serve the average consumer. Healthcare professionals are the most incredible people on the planet. They're saving lives, they're helping patients, and they're curing diseases. And I think one of the biggest things with our consumer is that they all have jobs. All of them are employed as doctors and nurses in healthcare institutions around the planet. And healthcare jobs are the fastest growing job segment of any other job segment in the world. And so that's a huge tailwind as we think about the space in which we operate and who we're serving. You know, if you look over the past year, 550,000 of the 600,000 people in the world job gains were healthcare jobs and social assistance. So thinking about, you know, we're in this massive industry, 140 million healthcare professionals around the world. They are growing faster than any other job segments. And, you know, wages are stable, right? This is an incredibly stable profession. And healthcare professionals are the backbone of any functioning society. So when we think about who we're serving, the industry that we're in, the setting that they're operating in, it is truly unique. This isn't a, and the other piece of it is that it's non-discretionary, right? Healthcare professionals need their uniform to go to work and do their job. It's a mandated industry. And so what we do at FIGS is we are providing a product to healthcare professionals so that they can look good and feel good and perform at their best. And that, I think, is truly unique. And to your question about the guide earlier this year versus today, I think, you know, we've just seen a continued acceleration, right, starting in and actually fourth quarter of last year where plus 25% growth the last three quarters and incredibly proud of that and doing that in an incredible profit in a profitable fashion. And so much, much more to do and much, much more to, in terms of how we're going to show up and serve this community. It's exciting to be in the position that we're in today and to continue to execute on all of what's in front of us.

Perfect. Great. So Sarah, I'm going to turn to you about the model itself. FIGS is primarily e-commerce, and so you get a lot of data, right, along with kind of to to to get help you understand the consumer backdrop. Traffic's a big So can you talk to us about kind of those three quarters that you've actually been accelerating top line growth? What have you been seeing in terms of traffic and more importantly conversion at full price?

So, you know, we've been growing the business. We've been accelerating that growth rate, and a big piece of that is from higher traffic. We've seen great efforts from all over our marketing channels that are driving that traffic, and still maintaining strong conversion. And that strong conversion is really a function of the product offering. And that continuing to improve from all the pieces that we've been doing to continue to innovate, continue to invest in the layering system. So seeing really strong results that's driving all our orders and really contributing to that top line growth.

Great. And let me just put that into perspective. We just came out of a second quarter earning season. What you're describing here, 20% top line growth, profitability, strong gross margins, conversion and traffic up, is actually rare, very rare in this current environment. I think that's why we get so many questions about, is the consumer healthy? Your consumer is healthy. And I think that speaks volumes to what I'm going to talk about next. So the moat, right? What makes your business different? Every great company has a moat. You and I talked about this at the initial public offering at great length. I think you've proven it. So when you think about FIGS today, what is in essence the true moat?

Yes, I mean, I think, you know, there are a number of moats, and I know you said one, but I'm going to say two. Okay, so I think product is our moat, right? It's our North Star. And we don't think about product as in, just making something, right? It's really about creating a product that works for a community in an environment that they're in. And we start at the yarn level. So, we became, This is a fabric that is antimicrobial and wrinkle resistant and stain repellent and has four-way stretch and really works in the environments that healthcare professionals are in. Having enough storage and pocketing for your keys and your stethoscope and your alcohol swabs and all the things you're carrying around as a healthcare professional is super important. Kind of combining these two worlds around technical fabric and comfort and really bringing those together in for a community that didn't have it and so you know product and continue to innovate not just in scrub wear but across the layering system Sarah mentioned it under scrubs outerwear compression socks we have a shoe footwear collab with New Balance, like all of that is really important so that we can serve all the different needs of healthcare professionals both on shift and off shift head to toe. I would say the moat that is that is harder to replicate, but once again, no one's been able to rip off our fabric, but the moat that's harder to replicate is how we've built a community. You know, what we've done for this industry we've branded an unbranded industry, we've de-commodified what many believed was a commodity product, but the thing that I think we're most proud of and something that we really have honed in on, is around how we've built a community around a profession. Okay, this is a die-hard fanatical community that loves FIGS and we are obsessed with them and love them as much as they love us. This is a community of people that have dedicated their lives to serving everybody else. And that job is hard. And so when we think about how we show up for them in our campaigns, in our, you know, showcasing the best of them back to them, whether that's a billboard in Times Square, a film on Instagram and TikTok, or an activation we're doing next to their hospital, we need to show up really true to who they are. Truly understanding them and getting what they do and how they do it and having their back. And that's something that is very hard to replicate. And on the piece around that, we have a whole advocacy group fighting for healthcare professionals in D.C. We're giving back scrubs, giving scrubs around the world to healthcare professionals in need. And so that's a big part of what we do. There's so many things on the community front that we do with our now 600 global ambassadors that are exclusive to our brand that really helps, you know, them, they are driving the brand as much as we're working with them to continue to build everything that we're doing. So,

So it's super exciting. Now, I really like the point that you made because just outside, we were talking about new competitors entering your space. And I think what they lack is they can make the product, they can knock off your designs, but what they can't do is build this longstanding community. So I very much appreciate that. I guess it goes into to my next question. So some companies sell products and others sell symbols of identity. So healthcare professionals obviously have an emotional connection to FIGS that feels very uncommon. Other than the community, how else do you maintain that connection with them?

Yeah, I mean, and I think that's what we've really done, to your point. We've built an authentic brand for the past 14, 15 years. And these are real relationships, one-on-one relationships. And, you know, we've been able to scale that. But that feeling that this company understands me and knows me is super important. So we do it in our, we do it with our films, we do it with our, you know, like really deep connections with our ambassador community who are the most influential voices in medicine. And then we do it with our, with our advocacy. And so one of the things that we put forth is our Healthcare as Human Act, which we're fighting for a $6,000 tax credit. I mean, you get a tax credit for like having an EV car, you get a tax credit for like having certain windows in your house, you get a tax credit for having children, but what about saving lives? What about all the work that healthcare professionals do? And so $6,000, $6,000 a year is what we're fighting for. We've also partnered with the Dr. Lorna Breen Foundation on mental health support. You know, coming out of COVID was incredibly impactful for our community in terms of post-traumatic stress disorder and everything that they faced. And so, you know, there was like a question on the form when you were joining a hospital that said, like, have you ever had mental health support and that could be used against you if you check that box. So we got, I think, about half the states in the U.S., we got that question off the form. I mean, if you're an elite athlete, you have a coach. Why is it as a healthcare professional you can't have a therapist? That seems crazy. Okay, and then, you know, a whole host of other things around pay, safety, training, support in your workplace. And so, you know, our community knows that we're doing this work, and it's super rare. Like some of the things that we're doing, no one even thinks about. They don't understand because they're not direct to consumer. They don't understand the lives and the experience of being a healthcare professional and what's needed to do that job. We do because of those relationships and then we're able to take action and build out teams to go after this and really make that experience better which is our goal.

That's great, which then brings me to the brand awareness and the return on all these good things. We're sitting here today. We're broadcasting out to the investment community, and we all know these things. But it's hard to get that message out to 3.1 million active customers. So Sarah, can you talk about sort of like where you are in that customer acquisition journey? You know, a lot is always talked about ROAS, return on ad spend, how much more effective that is as you build this sort of install base, so to speak. And what have you learned about the lifetime value of your most engaged customers? Sure.

So our active customer base is 3.1 million. We grew at 13% in the quarter. We've been accelerating the growth rate of that active customer base. And that's really being driven by not only acquiring new customers, but seeing really favorable returning customer metrics. There's over 140 million healthcare professionals worldwide, and so if you compare our 3.1 million to that, there's a massive runway for us to continue to go after improving our active customer base. So we look at the longer term growth drivers as one component really being that active customer base and continuing to increase it, as well as continuing to grow revenue per customer. Your question around marketing. So marketing has been successful for us to continue to grow that active customer base. And the journey with marketing really has evolved from a pure bottom of funnel to really building out, adding on upper funnel that's helping to improve our awareness, helping to share the brand message, helping to share all about product education. And we've also then shifted to adding in the middle layer. So we've really evolved from bottom of funnel to full funnel marketing. And we've done that with a very similar cost structure over time. So we've seen efficiencies gained through bottom of funnel and we've reinvested that into the business to really build out that full funnel. And so we've got this really great marketing flywheel that is really performing for us. We see continued opportunity with it, and we'll continue to use that to go after building out that active customer base.

I mean, it does seem like the step up in advertising, you know, some people are a little bit a little bit upset that it pressured the selling, general and administrative expense, but it really feels like we're now seeing the aftermath of that with the acceleration in the um the customer acquisition. So, with that in mind, what gives you the confidence that recent acceleration in this customer growth is sustainable and not simply the kind of like impact of some higher brand advertising in the earlier part of the year? Yes.

Sure, I mean, I think how we look at the overall business in terms of what's been driving the growth, not only within the active customer base, but really throughout, is that it's broad-based. It's not just one thing that we've turned on. We've got a really powerful ecosystem that's working for us and driving the results. We're seeing it across our geographies, our product, our different channels. And so it's the whole system that's working for us and driving it, and that tells us that there is sustainability behind it. We've made investments into the business that have improved our results, and we're only at the beginning here. So we have lots of other initiatives that are still to come. And so we know that there's additional levers we can continue to pull, additional investments that we can continue to make to continue that growth into the future.

Can you share any brand awareness metrics with us, kind of a year ago or before you started the big push to the top of the funnel?

Sure. So overall, the tracking that we have around brand awareness, suggests that it is quite low. And so we've seen continued improvement in all of those metrics. So unaided awareness, awareness, preference usage, and year-to-date we've seen notable improvements. And so that's been really great to show that the efforts that we are doing are working. We do think we have a big runway, you know, so there's a lot of people that are not aware of FIGS and that's still within the U.S. So there's still awareness and business that we can continue to drive within the U.S. And then much more so globally. We've been building our international business. It's about 20% of the business today. And, you know, as we continue to build that awareness and have people learn about the brand, as soon they try the product on, there's a lot of stickiness once they've tried that product, they're with us. And so we can continue to invest in that upper funnel to drive that awareness.

And really build the brand for the future. Great. So I'm going to move over to the competitive landscape. So when you started this journey in 2021, or at least since I've known you from the initial public offering, there were a lot of, you were kind of the transformation, right, you were moving from kind of a primarily wholesale driven account based system to the direct-to-consumer model. Can you talk about today, five years, five and a half years later, how some of those competitors that we thought would be difficult for you to move aside, how the landscape has sort of shifted more in your favor, and what are the big changes that you're seeing today amongst the competition? You know, I think there's really two parts of the competitive landscape. It's kind of the old world, as you mentioned, the dinosaurs that kind of, I think there's really two parts of the competitive landscape. It's kind of the old world, as you mentioned, the dinosaurs that kind of,

We're essentially licenses of other companies like Cherokee and Dickies and Grey's Anatomy Scrubs, which is a license from ABC Studios, the TV show. Which is crazy. And all of those companies would then sell to, you know, scrub stores and strip malls where there'd be a rock of black and a rock of navy and next to bedpans and knee braces and that was like the industry, right? And so, and they were, and economically, it didn't make any sense because they were paying a 10 to 12% royalty fee to the license holder, they're giving 60% of the price to the holder. And so it was just like a, and they didn't know the names of their customer because somebody else was selling to the end user, the healthcare professional. So that was the industry. We called it the anti-moat. Those companies are still stuck in the strip mall, right? And so that, a lot of those companies, the largest company has since gone bankrupt and is restructuring. And I think even now it's going through a number of challenges. And then the new world. You know, we were pretty, like, we didn't do a lot of press because we didn't feel like that would do anything for us. So, you know, a lot of, like, I would say the copycats were very behind in terms of, like, they saw our success in the initial public offering, then they tried to copy us. A lot of them launched two years later, kind of like, were like, oh, this is harder than I thought, and then got bored and then went away. And then some of them are still around. But I would say if you were to take the full like copycat space, you know, and combine all their revenue, it's like a fifth of our size. All of it. And scale matters, right? Because like our marketing budget's bigger than their revenue. And that's hard to compete with. And our relationships with our manufacturers are really deep, and so we're able to innovate and do things that others can't do. And they can't access our ambassadors that are really important to what we do, and they And they just don't think like we do, right? And not to say that we are not complacent, we're paranoid, we got to be better, faster, smarter than everybody else, and all of that. But at the end of the day, I do think the moat has never been wider between us and everybody else, and we've never been better positioned from a product and a marketing standpoint to continue to execute on all of our initiatives and continue to deliver on our goals.

Great. Let me just remind everybody where you are in that journey. This year, we're looking at about $760 million top line. We always say the path to that first billion is really, really tough. And then at that billion, you get enough eyeballs on you and you make enough of it. An impression that that 1 to the 2 starts to really happen. So you're right on that kind of big inflection point. So as we talk about the revenue growth formula, we talked about customers, new acquisition, but let's talk about wallet expansion, right? Share of wallet. How should we think about the opportunity to grow spending from existing customers, which would complement the new customers?

Sure. You know, I think that the new customer opportunity is just as big, sorry, the repeat frequency opportunity is just as big as the new customer opportunity. Right? We talked about 140 million healthcare professionals. We have 3.1 million active customers. But there's a huge opportunity in terms of how often healthcare professionals are coming back to replenish their uniform with us. And so healthcare professionals, you know, they come to us, they might buy the Katarina top and the Isabel pant. Those are two of our best-selling products. Check them out. And then they are going to come back because they love it so much. And that... And we're not paying for them to come back, right? That's the beauty of the product being so great, that people want to come back, and they need their uniform to go to work and do their job. On average, healthcare professionals are buying about four to six sets of scrubs a year. They have eight to 12 sets of scrubs in their closet. They're replacing their uniform wardrobe every two years. And so this repeat dynamic is incredibly powerful. It's the difference between FIGS and almost every other consumer company on the planet. The acquisition is mainly from word of mouth because everyone's a walking billboard acquiring that next customer for us. That's why our marketing is so efficient. And then on the repeat side, you're coming back because the product is so great. And there's no reason why you would need to see an ad or a website or whatever to buy it again, right? So that replenishment dynamic is super strong. And so, you know, revenue per customer record $229. On average, healthcare professionals spend $550 a year on their healthcare uniform. And so a lot of runway to continue to penetrate the full share of wardrobe. And we're going to continue to do that. But, you know, it is not just about the scrubs. It's also about the non-scrubs. Non-scrub wear grew 40% in the quarter. That's your under-scrubs, your outerwear, your compression socks. We have an amazing accessories business that's, like, blowing up right now. We just made an acquisition of V Coterie, which is a pin and jewelry and charm business, which is awesome. And so, you know, all of the ways that not only all the products you need in your job, but also how are you personalizing, you know, it's it's super fun, it's super cute, and there's all these ways that we can make it fun and cute for our healthcare professionals.