FIGS, Inc. (FIGS) Earnings

Management highlights

• Overall Q2 Performance - Net revenues grew 29% year-over-year to $196.6 million, beating the prior low-20% growth outlook, marking the third straight quarter of 25%+ growth. - Active customer growth surged 13% to 3.1 million; average order value (AOV) hit a record $127, and net revenue per active customer reached an all-time high of $229 (surpassing the COVID-era peak of $227). - Excluding prior year tariff refund benefits, adjusted EBITDA margin reached 18.6%, up from 12.9% in the year-ago quarter. The board approved a new $100 million share repurchase authorization, bringing total repurchase capacity to $119 million. • Product and Strategy Updates - Product innovation is focused on improving style, color, fabric, and fit: new wide-leg scrub pant options, highly demanded new color Espresso, and new fabric formulations (Formex, the newly launched Fibrex) complement the core Hallmark Finex fabric. Lower return rates confirm customer satisfaction with fit improvements. - The company acquired V Coterie, an accessories brand founded by a former dentist that specializes in healthcare-focused pins, jewelry, and charms. The acquisition deepens emotional connection with the community and unlocks new incremental total addressable market (TAM) in personalized uniform accessories. - Non-scrubware now represents 18% of revenue and management sees long-term opportunity to grow this share by expanding into underscrubs, lab coats, outerwear, footwear, and medical compression gear. • Brand and Community Engagement - Key Q2 brand activations included a Nurses Week campaign highlighting nurse challenges and celebration, the in-person Health Care is Human advocacy rally in Washington D.C. (the company's largest advocacy effort to date, with over 30 congressional meetings pushing for three healthcare worker-focused policy priorities), and a FIGS retreat for nearly 80 healthcare professionals to recharge. - High-profile limited edition collaborations with Star Wars and Marvel's Spider-Man drove strong sell-through and customer engagement. - Leading brand funnel metrics (unaided awareness, consideration, preference) have improved year-to-date, with search volume for FIGS now exceeding search volume for generic scrubs. • Market Expansion - International: The company now operates in 85 markets, with 27 new markets opened year-to-date. Management is increasing localized investments including in-person activations, local ambassador recruitment, and marketing on region-specific platforms (Line in Japan, Kakao in South Korea), and delivered 67% net revenue growth in Q2. International is ranked as the top long-term growth opportunity by management. - Institutional Team Channel: Onboarded Bupa Dental Care to outfit nearly 400 UK dental centers, with continued investments in platform technology to streamline large workforce outfitting. - Community Hubs (Retail): Delivered record results with strong comp store and new location performance. Four new store leases are signed for 2026 openings in high-healthcare-density markets, with additional 2027 locations already being secured. Management sees massive untapped growth potential for this channel and ranks it as the second-highest long-term growth opportunity.

Guidance

- Full year 2026 net revenue growth guidance was raised to ~20% from the prior outlook of 14% to 16% (nearly doubling the original growth outlook). Q3 net revenue growth is expected to be ~20% year-over-year, and Q4 growth is expected to be ~10% year-over-year, which compares against a strong 33% growth acceleration in Q4 2025. - Full year GAAP gross margin is now expected to be ~69.5% including the realized tariff refund benefit; the underlying core gross margin expectation (excluding refunds) remains a modest year-over-year improvement from fiscal 2025's 66.5%. A lower 12.5% average Section 301 tariff rate (down from the prior 15% assumption) is offset by incremental air freight costs to expedite production amid supply chain shifts. - Full year operating margin guidance was raised to ~10.8% (inclusive of tariff refunds) from the prior 7.8% to 8%. Q3 is expected to see a year-over-year gross margin decline, followed by a large year-over-year gross margin improvement in Q4. - Full year adjusted EBITDA margin guidance was raised to 14.8% to 15% (inclusive of tariff refunds) from the prior 13% to 13.2%. Q3 adjusted EBITDA margin is expected to be ~14%, up from 12.4% in the year-ago quarter. - Q3 inventory is expected to remain down double-digits year-over-year even as the company transitions suppliers amid the Jordan import hold.

Segment performance

By product category: - Scrubware: Grew 29% year-over-year to ~$161.2 million, representing 82% of total Q2 net revenues. Strong growth was recorded across both core and limited edition offerings, with color innovation and core productivity driving results. - Non-scrubware: Grew 40% year-over-year to ~$35.4 million, representing 18% of total Q2 net revenues. Growth was broad-based, led by underscrubs, outerwear, and emerging accessory categories including compression socks and hair accessories. By geography: - U.S. net revenues: Increased 22% year-over-year to $158.7 million. - International net revenues: Increased 67% year-over-year to $37.9 million, with over 50 percentage points of growth coming from existing comparable markets. Strong growth was recorded across Europe, Latin America, Mexico, Canada, Australia, and the Middle East. By channel: - Direct-to-consumer and institutional team channels both delivered strong growth, with team channel adding new large institutional accounts like Bupa Dental Care. Community Hubs (retail stores) delivered record net revenues with strong comparable store performance and contributions from new locations.

Risks & headwinds

- U.S. Customs and Border Protection issued a withhold release order (WRO) that prevents imports from the company's Jordanian production partner. While management has mitigated most of the disruption by shifting volume to existing alternative suppliers and expediting production via air freight, incremental air freight costs partially offset tariff refund benefits for the full year. - Non-scrubware carries lower gross margins than core scrubware, which creates modest structural pressure on overall gross margins as the category grows. Management expects SG&A leverage will more than offset this pressure over the long term. - All forward-looking performance is subject to general macroeconomic and consumer demand risks, as well as supply chain volatility, which could cause actual results to differ from guidance.

Analyst Q&A

• Q: What is driving the current strong new and returning customer growth? /

  A: Management attributes growth to consistent product improvements across fit, function, comfort, and style that meet all healthcare professional needs. Viral, community-resonant marketing campaigns and natural word-of-mouth (driven by the dense work environments of healthcare workers, where FIGS products act as walking billboards) also drive new customer acquisition. For returning customers, the replenishment-driven nature of uniform demand means repeat purchases are natural as customers restock core items and add new non-scrub products to their wardrobes.

• Q: How does the V-Coterie acquisition change FIGS' category and TAM opportunity? /

  A: V-Coterie lets healthcare professionals personalize their uniforms and celebrate professional milestones, building deeper emotional loyalty with the community. It is a TAM creation opportunity: personalized accessories were not a meaningful part of the healthcare apparel industry before, and it opens a new, large market for FIGS. Early consumer response has been very strong, with multiple products already selling out.

• Q: How is FIGS mitigating the WRO on Jordanian imports, and can it meet demand? /

  A: FIGS already had an existing flexible, diversified supply chain and was actively de-risking production amid the ongoing Middle East conflict prior to the WRO. The company's high-volume, low-skew business model makes it an attractive partner for other top manufacturers, so it has been able to shift most volume to existing alternative suppliers and expedite production. Even with the incremental air freight cost, management was still able to raise full-year top and bottom line guidance, and is highly confident in meeting demand and executing on long-term plans.

• Q: How should we rank FIGS' core long-term non-core growth opportunities over the next 3-5 years? /

  A: Management ranks international growth first, citing 67% Q2 growth, strong performance across all key regions, and massive untapped market share in a global 140 million healthcare professional market. Second is Community Hubs (retail), where the company has only 5 stores open to date, new locations are outperforming expectations, and there is massive untapped growth potential. Third is the institutional Team channel, where large new accounts like Bupa Dental Care signal early momentum and significant long-term opportunity.