FIGS, Inc. (NYSE:FIGS) is a leading healthcare apparel brand dedicated to improving the lives of healthcare professionals. Founded in 2013, the company has rapidly grown to become a dominant player in the medical apparel market, known for its innovative designs, high-quality fabrics, and commitment to customer satisfaction.
Business Overview and History: FIGS was co-founded by Heather Hasson and Trina Spear, who recognized the need for a more fashionable and functional alternative to traditional scrubs. The company began as an online-only retailer, leveraging its direct-to-consumer model to offer a curated selection of scrubs and other medical apparel. FIGS set out to revolutionize the large and fragmented healthcare apparel market, which was highly commoditized at the time. The company's mission was to transform scrubs from basic uniforms into technically-advanced garments designed to meet the specific needs of healthcare professionals.
FIGS rapidly grew its customer base and brand presence through innovative digital marketing strategies and by building a strong community of engaged healthcare professionals, which the company refers to as its "Awesome Humans." This community-driven approach helped FIGS differentiate itself in the crowded healthcare apparel market. Over the years, FIGS has expanded its product portfolio to include a wide range of healthcare-focused offerings, including outerwear, underscrubs, footwear, compression socks, and more.
One of FIGS' key strengths has been its ability to build a strong brand and loyal customer base. The company has invested heavily in marketing and brand-building efforts, including partnerships with healthcare professionals and social media influencers. This has helped FIGS establish a unique identity and position itself as a premium, aspirational brand within the healthcare apparel industry.
Product Segments: FIGS operates in two main product segments:
1. Scrubwear: This segment represents the majority of the company's net revenues. FIGS designs and sells scrubs and other medical apparel that combine comfort, durability, function, and style.
2. Non-Scrubwear: This segment includes products such as outerwear, underscrubs, footwear, compression socks, lab coats, and loungewear. These offerings complement the core scrubwear line and allow FIGS to expand its product portfolio for healthcare professionals.
Financial Performance: FIGS has demonstrated impressive financial performance in recent years. In the fiscal year 2023, the company reported net revenues of $545.65 million, up from $505.83 million in the previous year. This represents a year-over-year increase of 7.9%. However, the company's net income declined from $21.19 million in 2022 to $22.64 million in 2023, a decrease of 6.7%.
The company's profitability has been impacted by various factors, including increased operating expenses, higher marketing costs, and supply chain challenges. FIGS has also faced pressure on its gross margins, which decreased from 70.3% in 2022 to 68.1% in 2023.
In the most recent quarter (Q2 2024), FIGS reported net revenues of $144.22 million, up 4.4% compared to the same period last year. Gross profit was $97.26 million, with a gross margin of 67.4%. Net income for the quarter was $1.10 million. For the six months ended June 30, 2024, net revenues were $263.52 million, up 2.0% year-over-year. Gross profit was $179.40 million, with a gross margin of 68.1%. Net income for the six-month period was $2.54 million.
Liquidity and Solvency: As of June 30, 2024, FIGS had a strong balance sheet, with $131.81 million in cash and cash equivalents. The company's current ratio, a measure of liquidity, stood at 5.45, indicating a healthy ability to meet its short-term obligations. The quick ratio was 3.89, further underscoring the company's strong liquidity position.
FIGS' debt-to-equity ratio was 0.14, suggesting a low level of leverage and a strong solvency position. The company has access to a $100 million revolving credit facility, with $95.10 million available as of June 30, 2024.
The company's free cash flow generation has also been solid, with $84.57 million in free cash flow generated in 2023. In the most recent quarter (Q2 2024), FIGS generated $16.54 million in operating cash flow and $7.55 million in free cash flow.
Geographic Performance: FIGS is primarily a US-based company, with 86.9% of net revenues coming from the United States in Q2 2024. The remaining 13.1% of net revenues came from international markets, showing the company's growing global presence.
Operational Challenges and Strategic Initiatives: Despite its strong brand and financial performance, FIGS has faced several operational challenges in recent years. The COVID-19 pandemic, for example, disrupted the company's supply chain and impacted its ability to meet customer demand. FIGS has also grappled with inflationary pressures, which have squeezed its profit margins.
To address these challenges, FIGS has implemented various strategic initiatives. The company has invested in enhancing its fulfillment capabilities, including the transition to a new fulfillment center in Goodyear, Arizona. This is expected to improve the company's order processing times and reduce shipping costs.
FIGS has also focused on diversifying its product portfolio and expanding its non-scrubwear offerings, which now account for 18% of the company's net revenues. This strategy has helped the company reduce its reliance on its core scrubwear business and tap into new growth opportunities.
Furthermore, FIGS has made efforts to strengthen its international presence, with sales to customers outside the United States now representing 13.4% of its total net revenues. This geographic diversification has helped the company mitigate some of the risks associated with its domestic market.
Short Reports and Allegations: In November 2022, FIGS became the target of a putative class action lawsuit alleging that the company made false and misleading statements in its initial public offering and subsequent SEC filings. The plaintiffs claimed that FIGS misrepresented its ability to predict customer demand and manage its supply chain, inventory, and air freight usage and costs.
FIGS has vigorously defended against these allegations and, in May 2023, the court granted the company's motion to dismiss the case without prejudice, allowing the plaintiffs to file an amended complaint. The company continues to believe that the lawsuit is without merit and is committed to protecting its reputation and interests.
Additionally, FIGS has faced allegations regarding labor conditions at one of its suppliers in Jordan. The company is in the process of transitioning away from this supplier to address these concerns and maintain its commitment to ethical business practices.
Industry Trends: The global healthcare apparel market is expected to grow at a Compound Annual Growth Rate (CAGR) of 5.2% from 2023 to 2030. This growth is driven by factors such as increasing healthcare expenditure and the growing number of healthcare professionals worldwide. FIGS is well-positioned to capitalize on these trends with its innovative product offerings and strong brand presence.
Outlook and Future Prospects: Despite the challenges it has faced, FIGS remains optimistic about its future prospects. The company has provided guidance for fiscal year 2024, projecting net revenues in the range of $580 million to $590 million, representing a year-over-year increase of 6.4% to 8.3%.
FIGS is also focused on expanding its retail footprint, with plans to open additional "Community Hubs" in key markets. These physical stores represent a first-of-its-kind retail experience for healthcare professionals and are expected to help raise brand awareness and complement the company's strong online presence, providing customers with an enhanced omnichannel experience.
Additionally, FIGS is investing in its product development and innovation efforts, aiming to introduce new and innovative products that cater to the evolving needs of healthcare professionals. The company's commitment to sustainability and social responsibility is also a key part of its long-term strategy, as it seeks to differentiate itself in an increasingly competitive market.
Conclusion: FIGS, Inc. has established itself as a leading player in the healthcare apparel industry, leveraging its strong brand, innovative product offerings, and direct-to-consumer business model to drive growth and profitability. Despite the challenges it has faced, including supply chain disruptions, inflationary pressures, and legal allegations, the company has demonstrated resilience and a willingness to adapt to changing market conditions.
As FIGS continues to navigate the complexities of the healthcare apparel industry, its ability to maintain its competitive edge, execute on its strategic initiatives, and address the concerns raised by short reports will be critical in determining its long-term success. The company's strong financial position, growing international presence, and focus on product innovation position it well for future growth. However, FIGS must also continue to address challenges such as supply chain disruptions and labor concerns to maintain its reputation and market position.
Investors and analysts will closely monitor the company's financial performance, operational metrics, and its ability to capitalize on emerging trends in the healthcare apparel market. With its strong brand, loyal customer base, and commitment to innovation, FIGS appears well-positioned to continue its growth trajectory and solidify its position as a leader in the healthcare apparel industry.