Executive Summary / Key Takeaways

• FIGS is a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that disrupted a commoditized market through technical innovation, premium design, and deep community connection, positioning itself as a niche leader.
• Recent performance shows signs of normalization in core scrubwear trends and strong growth in international and non-scrubwear categories, driven by product innovation and strategic investments, despite near-term pressures.
• The company is strategically accelerating investments in key growth levers – International expansion (especially Asia), the TEAMS B2B business (building an outbound sales function), and physical Retail (Community Hubs) – funded by a strong balance sheet and cash flow, aiming to unlock significant growth beyond 2025.
• Near-term profitability is expected to be impacted by these growth investments, higher fulfillment costs, and new tariff headwinds, reflected in the full year 2025 adjusted EBITDA margin guidance of 7.5% to 8.5%, down from 2024 levels.
• Key factors to watch include the effectiveness of strategic investments in driving future top-line growth, the ability to mitigate tariff impacts, the successful ramp-up of the new fulfillment center, and the execution of the planned reduction in promotional activity.

The Evolution of Healthcare Apparel: FIGS's Disruptive Journey

FIGS, Inc. was founded in 2013 with a clear mission: to celebrate, empower, and serve healthcare professionals by transforming their everyday uniform. Before FIGS, the healthcare apparel market, particularly scrubs, was largely commoditized, characterized by ill-fitting, non-technical garments. FIGS set out to change this by creating technically advanced apparel that combined comfort, durability, function, and style, effectively branding a previously unbranded industry. This direct-to-consumer (DTC) approach, initially focused on its digital platform, allowed FIGS to build a direct relationship with its customer base, whom it affectionately calls "Awesome Humans," fostering a strong community around the brand.

This foundational strategy of product innovation and community building established FIGS as a niche leader. The company's success is rooted in its differentiated approach to product development, emphasizing proprietary fabric blends, meticulous attention to fit, and functional design tailored specifically for the demanding environment of healthcare. While FIGS does not own the intellectual property for the underlying fabric technology, it leverages third-party suppliers to produce proprietary blends and treatments that result in products unique to the brand. This focus on quality and performance over traditional, lower-cost alternatives has been a key differentiator. The company continually invests in R&D to enhance its offerings, recently launching FORMx, a new fabrication designed for greater comfort and lower impact environments with enhanced stretch and a modern aesthetic. This initiative, along with ongoing efforts to standardize fit across the entire assortment (expected to be fully rolled out and marketed in the second half of 2025), aims to improve consistency and inclusivity, further strengthening customer trust and loyalty. These technological and design advantages contribute to FIGS's competitive moat, supporting its premium pricing strategy and order economics, even if initial product margins on new innovations may be lower before achieving economies of scale.

In the competitive landscape, FIGS operates against a backdrop of traditional healthcare apparel wholesalers like Careismatic Brands and Barco Uniforms, specialty retailers such as Scrubs Beyond, and digitally native brands like Jaanuu. While these competitors offer scrubs, FIGS differentiates itself through its premium brand positioning, direct relationship with customers, and continuous product innovation. Larger, more diversified apparel brands like Lululemon (LULU), Nike (NKE), Under Armour (UAA), and Gap Inc. (GPS) represent indirect competition, particularly in overlapping categories like performance wear and loungewear. While these larger players possess significant scale, supply chain efficiency, and broader market reach, FIGS maintains an edge in its deep understanding of and direct connection with the healthcare professional community. FIGS's niche focus allows for specialized product development (e.g., scrubs with enhanced durability or moisture-wicking properties specifically for medical use) and targeted marketing that resonates deeply with its core demographic. However, FIGS's smaller scale can result in higher costs per unit compared to mass-market competitors, and its reliance on a limited number of third-party suppliers, particularly in Asia and the Middle East, exposes it to supply chain risks that larger, more diversified companies might better absorb. The company's strategic response involves diversifying its manufacturing base and expanding its channel presence to mitigate these vulnerabilities and capitalize on its brand strength and product innovation.

Strategic Expansion and Recent Performance

Building on its core strengths, FIGS has strategically expanded its offerings and reach. The product line has grown significantly beyond core scrubwear to include a full layering system and head-to-toe solutions, such as outerwear, underscrubs, footwear (including a collaboration with New Balance on the healthcare-specific 3447 model), and loungewear. Non-scrubwear now represents a meaningful portion of the business (20% of net revenues in Q1 2025), contributing to a higher Average Order Value (AOV), which reached a record $119 in Q1 2025. This diversification is a key part of FIGS's strategy to increase wallet share and become a comprehensive lifestyle brand for healthcare professionals.

Channel expansion is another critical growth pillar. Recognizing that over 80% of global healthcare professionals reside outside the U.S. and that many prefer to experience products physically, FIGS is accelerating its investments in International markets, the TEAMS B2B business, and physical Retail (Community Hubs). International sales grew 16% in Q1 2025, demonstrating continued traction despite lapping a prior-year duty reclassification benefit. The company is prioritizing expansion in Asia, with planned debuts in Japan in Q2 2025 and South Korea in H2 2025, focusing on localization efforts. The TEAMS business, currently representing well under 10% of revenue, is evolving from a strictly inbound model to include an outbound sales team to actively pursue opportunities with institutions and clinics, a strategy expected to unlock significant future growth. Retail expansion is proceeding with a test-and-learn approach, with a new Community Hub planned for Houston and two additional locations by the end of 2025, aiming to enhance brand awareness and provide an omnichannel experience. These strategic investments, while impacting near-term profitability, are designed to broaden FIGS's reach and deepen its connection with the global healthcare community, paving the way for future growth.

Recent financial performance reflects both the impact of these strategic shifts and the dynamic operating environment. For the three months ended March 31, 2025, net revenues increased 4.7% year-over-year to $124.9 million, exceeding expectations and showing a return to positive U.S. growth (up 3%). This was driven by increased orders from existing customers and a higher AOV, indicating signs of normalization in scrubwear trends. Gross profit increased 2.8% to $84.5 million, but the gross margin contracted 1.3 percentage points to 67.6%, primarily due to product mix shifts and higher freight expenses, partially offset by fewer promotions. Operating expenses increased 3.6% to $84.7 million, with selling expenses increasing significantly (14.8%) due to higher fulfillment center costs following the transition to the new Arizona facility and increased shipping expenses. General and administrative expenses decreased (6.0%), largely due to lower stock-based compensation. Net income was $0.1 million, down from $1.4 million in Q1 2024. Adjusted EBITDA decreased to $9.0 million (7.2% margin) from $13.0 million (10.9% margin) in Q1 2024, reflecting the impact of higher operating expenses.

Financial Health and Outlook

FIGS maintains a strong financial position, which provides crucial flexibility for its growth initiatives. As of March 31, 2025, the company held $90.0 million in cash and cash equivalents and $161.2 million in short-term investments, totaling $251.2 million in liquid assets. It operates debt-free, with $95.1 million available under its revolving credit facility.

This robust balance sheet and consistent cash flow generation ($7.9 million in free cash flow in Q1 2025) are key competitive advantages, enabling FIGS to self-fund its strategic investments in international expansion, TEAMS, and retail, as well as opportunistically return value to shareholders through its share repurchase program ($52.0 million remaining authorization as of March 31, 2025).

Looking ahead, FIGS's outlook reflects a balance between cautious near-term expectations and strategic long-term investments. The company's full year 2025 net revenue outlook remains unchanged, projected to be down in the low-single digit range year-over-year. This guidance factors in the planned reduction in promotional activity, a strategic decision to prioritize long-term brand health, which is expected to be a headwind to revenue growth, particularly in the second half of the year. Q2 2025 net revenue is expected to be approximately flat year-over-year.

The full year 2025 adjusted EBITDA margin is projected to be between 7.5% and 8.5%. This outlook incorporates the impact of new U.S. tariffs, including the 10% baseline tariff announced in April 2025, which is expected to increase product costs. The low end of the guidance range assumes an unmitigated tariff impact of approximately 150 basis points, while the high end assumes successful mitigation strategies reducing the impact to approximately 100 basis points. The tariff impact is expected to flow through the P&L primarily in the second half of the year due to inventory costing. The adjusted EBITDA margin guidance also reflects planned investments in growth initiatives and ongoing fulfillment center costs, which are expected to offset the benefit from lower stock-based compensation ($16 million year-over-year reduction expected in G&A). Q2 2025 adjusted EBITDA margin is expected to be above the prior year's 9% mark, with the second half carrying greater variability. Capital expenditures for 2025 are planned at approximately $5.0 million, focused on retail expansion and foundational investments.

Risks and Challenges

Despite its strategic focus and strong financial position, FIGS faces several risks. Macroeconomic pressures, including inflation, high interest rates, and potential recession fears, could continue to impact consumer spending and healthcare workforce-related stress may affect purchasing behavior. Supply chain disruptions, exacerbated by geopolitical events like the conflict in the Middle East, could lead to increased shipping costs and delays, impacting margins and inventory levels. The company's reliance on a limited number of third-party suppliers, including the planned transition away from a Jordanian supplier, presents potential challenges. New tariffs pose a direct threat to cost of goods sold, and the effectiveness of mitigation strategies is uncertain. Operational risks related to the new fulfillment center, including achieving planned efficiencies and managing potential disruptions, could affect order fulfillment and costs. Competition remains intense, and larger players could leverage their scale to pressure pricing or expand into niche areas. Furthermore, risks related to data privacy, cybersecurity, and evolving regulations could impact operations and reputation.

Conclusion

FIGS is a disruptive brand that has successfully carved out a leadership position in the healthcare apparel market through a potent combination of product innovation, premium design, and authentic community building. While the company has navigated recent inconsistencies in performance and faces ongoing macroeconomic and operational headwinds, including new tariff pressures, its strategic direction is clear: leverage a strong balance sheet and cash flow to aggressively invest in key growth levers – international expansion, the TEAMS B2B business, and retail – to unlock significant long-term growth opportunities. The near-term outlook reflects the impact of these investments and external challenges on profitability, but the underlying thesis centers on FIGS's ability to stabilize its core business, expand its reach globally, and deepen its connection with healthcare professionals through differentiated products and experiences. Investors should monitor the execution of these strategic initiatives, the company's ability to manage costs and mitigate tariff impacts, and the trajectory of top-line growth as signs of the investment thesis playing out over the coming years.