FIGS, Inc. Q3 FY2025 earnings call

• Product strategy focus on 4 interrelated areas: improved function and fit, expanded head-to-toe solutions, strategic inventory investments, stronger calendar alignment. Notable fabric developments like FIONx, FORMx, FIBERx. • Community engagement through impactful campaigns like with Noah Wyle at Emmys and breast cancer awareness, driving brand resonance. • International expansion with 'go broad' (leveraging technology to enter 60 markets by year-end) and 'go deep' (investing in established markets like Canada, U.K., Mexico and new markets like Japan, China). • Investments in teams (nurturing partnerships, deploying updated technology) and community hubs (debuting 3 new stores, with plans to accelerate openings in 2026).

Net revenues were up 8% for the quarter. Scrubwear grew 8%, representing 84% of net revenues for the period. Non-scrubwear increased 7%, representing 16% of net revenues. U.S. sales increased 8% to $127.3 million. International net revenues increased 12%.

• Full-year 2025 net revenues expected to grow approximately 7% year-over-year, up from prior low single-digit outlook. • Adjusted EBITDA margin updated to approximately 10.3% compared to prior range of 8.5% to 9%. • Q4 expected to be the strongest net revenue growth of the year. • Acknowledges tariff headwinds in Q4 but offsets with lower discounts, improved returns processing, and freight efficiencies. • SG&A leverage continues with reduced expense rate deleverage impact due to improved top-line assumptions.

• Tariff headwinds with ramping sequential pressure as more impacted goods average into product costs, expected 20% tariffs in Vietnam and 15% in Jordan. • Lapping of sizable onetime duty drawback benefit in the prior year period. • Inventory management risks related to elevated inventory levels and potential margin pressure if not managed properly.

Q: Good quarter. On gross margin performance longer term, talk through how you envision the segment over next several years?

A: Gross margin for Q3 was 69.9%. Improved discount rates from promo pullback will continue, but will moderate as promo normalizes. Refurbishment rates improved but will moderate. Inbound rate optimization benefits continue, but tariffs are biggest piece with 440 bps impact next year.

Q: Congrats on strong execution. Expand on demand during business as usual days and pricing lever revisit?

A: Business as usual days saw acceleration each quarter. Pricing remains prudent with considerations like healthcare professionals' income levels and limited ability to flow through higher prices. Still some open-endedness on tariffs, and no pricing in 2025 with future pricing to be shared with healthcare professionals first.

Q: Congrats on strong execution. Expand on demand during business as usual days and pricing lever revisit?

A: Business as usual days saw acceleration each quarter. Pricing remains prudent with considerations like healthcare professionals' income levels and limited ability to flow through higher prices. Still some open-endedness on tariffs, and no pricing in 2025 with future pricing to be shared with healthcare professionals first.

Q: Nice quarter. Follow-up on sales acceleration into Q4 and drivers?

A: Broad-based and healthy trends continuing into Q4. New customer acquisition positive last 2 quarters, domestic business growth, and acceleration in business as usual days. Q4 focus on Black Friday, Cyber Monday with pullback in promo efforts vs prior year.

Q: Nice to see progress. Thoughts on Olympics marketing for Winter vs Paris Summer?

A: Excited about continued Team USA partnership. Learned to have more impact, apply new fabrication FIBERx, and optimize marketing spend and funnel balance.

Q: Congrats. Thoughts on international scaling and long-term mix target?

A: Two-pronged strategy: 'go broad' (leverage technology to enter 60 markets) and 'go deep' (invest in established markets like Canada, U.K., Mexico and new markets like Japan, China). International could sustain double-digit growth with long-term potential.

Q: Obviously upside in Q3. Unpack Q4 guidance on margin, selling, G&A?

A: Q4 has step-up on tariff impact, seasonal mix shift to lower margin non-scrubwear, and lapping of duty drawback benefit. Selling costs continue to improve, marketing rate increases for Olympics support, G&A rate benefits from lower stock-based comp but offset by higher people costs.

Q: Congrats. Balance of elevated inventory growth vs promo pullback?

A: Intentionally investing in inventory to support demand and improve in-stock levels. Higher-than-expected in-transit inventory in quarter, expected moderation in unit growth, and dollar growth increase in Q4 due to tariffs. Working on discipline in buying process to manage inventory balance down in 2026.

Q: Congrats. How is Teams strategy evolving and margin commentary?

A: Teams strategy focuses on upgraded technology for flexible and functional purchasing, supporting international teams. Teams has a lower gross margin profile due to higher discounts but favorable operating expense structure, contributing accretively to the bottom line.