FIGS, Inc. (NYSE:FIGS): A Healthcare Apparel Leader Poised for Continued Growth

Published on September 24, 2024 | Ticker: FIGS

FIGS, Inc. (NYSE:FIGS) is a leading direct-to-consumer healthcare apparel and lifestyle brand that has revolutionized the medical apparel industry. Founded in 2013 by Heather Hasson and Trina Spear, FIGS has rapidly grown to become a dominant player in the $12 billion U.S. healthcare apparel market and the $80 billion global market.

Business Overview

FIGS' mission is to celebrate, empower and serve current and future generations of healthcare professionals, known as "Awesome Humans." FIGS creates technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price point. By branding a previously unbranded industry and de-commoditizing a previously commoditized product, FIGS has become the industry's category-defining healthcare apparel and lifestyle brand.

Financials

In the fiscal year 2023, FIGS reported annual net income of $22.6 million, annual revenue of $545.6 million, annual operating cash flow of $100.9 million, and annual free cash flow of $84.6 million. FIGS has demonstrated strong financial performance, with a net profit margin of 4.1% and a free cash flow margin of 15.5%.

Looking at the first quarter of 2024, FIGS reported net revenues of $119.3 million, down 0.8% year-over-year. Gross margin for the quarter was 68.9%, compared to 71.3% in the prior year period. Net income for the quarter was $1.4 million, or $0.01 per diluted share. FIGS generated strong free cash flow of $11.1 million in the quarter.

Recent Developments

FIGS' performance in the first quarter was impacted by a mix shift towards higher-priced non-scrub categories, which carry lower gross margins. However, FIGS is actively investing in product innovation, marketing, and its fulfillment capabilities to drive long-term growth and profitability.

Specifically, FIGS is focused on expanding its product portfolio beyond its core scrubwear offerings. In the first quarter, non-scrub categories, such as outerwear, underscrubs, and compression socks, grew 9% and now represent 20.5% of total net revenues. FIGS believes this diversification will not only drive top-line growth, but also improve margins over time as it achieves greater scale and efficiency.

To support its product innovation efforts, FIGS has bolstered its design and technical development talent, as well as its network of best-in-class manufacturing partners. The results of these investments are already evident, with FIGS seeing strong customer engagement around new product launches, such as the On-Shift Sherpa Bomber Jacket, Seville ScrubLegging, and Isabel Wide Leg Scrub Pant.

In addition to product innovation, FIGS is also focused on enhancing its marketing efforts to drive brand awareness and customer engagement. FIGS is strategically ramping up investments in brand marketing, particularly around tentpole campaigns that celebrate and empower the healthcare community. For example, FIGS' recent "Anatomy of a Champion" campaign, which highlighted the Team USA Medical Team at the 2024 Olympic and Paralympic Games, generated significant buzz and engagement within the healthcare community.

FIGS is also making investments to improve its fulfillment capabilities and customer experience. FIGS is in the process of transitioning its fulfillment operations to a new, technology-enabled facility that will enable greater efficiency, reliability, and scalability. While these investments will result in some near-term margin pressure, FIGS believes they will position the company for long-term growth and profitability.

Outlook

Looking ahead, FIGS has raised its full-year 2024 net revenue guidance to a range of -2% to +2% compared to 2023, up from its previous guidance of -5% to flat. FIGS expects gross margins to be in line with 2023 levels, as the benefits of scale and efficiency in its core business offset the near-term impact of investments in product innovation and marketing.

Liquidity

FIGS' strong balance sheet, with $259.2 million in cash and cash equivalents and no debt, provides FIGS with the financial flexibility to continue investing in its growth initiatives. FIGS' robust cash flow generation, with $11.1 million in free cash flow in the first quarter, further supports its ability to fund these strategic investments.

The healthcare apparel market presents a significant growth opportunity for FIGS, given the company's strong brand positioning, innovative product offerings, and loyal customer base. As FIGS continues to expand its product portfolio, enhance its marketing efforts, and optimize its fulfillment capabilities, it is well-positioned to capitalize on the growing demand for high-quality, stylish healthcare apparel.

Conclusion

Overall, FIGS' focus on product innovation, brand building, and operational excellence positions the company for continued success in the rapidly evolving healthcare apparel market. With a strong financial foundation, a differentiated product offering, and a deep connection with its healthcare professional customer base, FIGS is poised to drive long-term shareholder value.

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