FIGS, Inc.

Good afternoon and welcome to this next session of the GS 32nd Annual Global Retailing Conference. My name is Brooke Roach and I cover the apparel brands and soft line sector here at Goldman. And I'm very happy to introduce our next session with FIGS. Here today is co-founder and CEO Trina Spear and CFO Sarah Otrud. Welcome Trina and welcome Sarah.

Thank you so much for having us. Trina. Thank you guys for coming. This is later in the day. So we're gonna make it as exciting as we can.

Amazing. Trina, you've had several strategic initiatives in play across your business, including a recent demonstrated return to growth across categories and geographies. As you look ahead, where do you see the biggest opportunity for FIGS?

Sure. I think we're at a really exciting time. For those of you who don't know our story, about 13 years ago, we disrupted the healthcare apparel market and really brought comfort and functionality and design to an industry that never had it. Um, and you know, we grew over a hundred percent every year and kind of. We're selling scrubs to healthcare professionals during a pandemic really accelerated the business and kind of came off of that with a bit of a COVID overhang. And so it's been exciting to, to, um, you know, kind of come out of that and really be the leader of the space, the best product, the best brand. Um, and to your question, we see opportunities, um, in the U S we see opportunities around the world. And also within a number of our growth levers. We're the largest digital brand with only two stores. So last year we did about 550 million in sales. And with essentially a store in Los Angeles and a store in Philly. We're really excited about building out more to come. In addition, we've been basically an e-commerce business, a direct-to-consumer e-commerce business serving healthcare professionals in a variety of ways. We've become kind of a love brand in the industry where healthcare professionals are obsessed with us, we're obsessed with them, and now we're interacting with institutions. And so the B2B part of our business, it's called Teams, is a really exciting part of the business. that we're focused on, especially as we look to continue to grow internationally, where, you know, large institutions want to really, you know, have uniforms for their team, right? And standardize and brand their institution. And so they're looking to FIGS to do that. And so we're really excited about our geographies. We're really excited about these newer channels and continuing to build the business going forward.

Excellent. Before we dive into some of those strategic initiatives, there's been a lot of noise in the operating environment this year. The healthcare consumer has traditionally been very resilient, but I'm curious, as you look at the balance of 2025, what are your expectations for the environment in the second half of the year relative to your recent results? Do you expect things to be better, the same, or worse?

I think we're in this really insulated part of the global economy, healthcare. Healthcare professionals are the backbone of any functioning society, and there's a huge shortage still for doctors and nurses in the United States and around the world. This is the fastest growing job segment. It's growing about three times faster than the average job segment. And so that's really exciting because we are the brand for healthcare. And as we look forward, yes, there's a lot of noise, there's a lot of macro things that are playing out, but we're really focused on what we can control, which is delivering incredible product to the best people in the world. We call them awesome humans because they are amazing. And our job is to not only show up with great product, our job is to deliver to them a great experience. Because at the end of the day, this is a replenishment driven industry. Healthcare professionals are coming back over and over again to replenish their uniform. It's a non-seasonal industry, right? There's no big holiday thing, right? You're getting your uniform day in and day out. You're wearing figs to work, at work, from work, on shift, off shift, head to toe. And so that's, I think, what makes the business really beautiful. It's where a low skew count, high volume business, right? People are buying essentially 80% of our businesses, about 15 styles. That's a beautiful thing that once again, people are coming back over and over and over to replenish. And so, um, you know, I think, you know, unlike maybe other consumer, uh, parts of the world, um, I think there's a lot of opportunity and we are at a little bit of a different inflection coming out once again, of this COVID overhang.

Very clear. As we think about the competitive landscape, FIGS has been a very prominent player within a very fragmented market. Do you expect market share consolidation in the industry to speed up, slow down, or be the same in 2026? How do you view the competitive landscape today?

Well, Brooke, I think you know I don't call them competitors. They are called copycats. We don't have competitors. You know, and I think that it's been interesting, right? When we came into this industry 13 years ago, the product and the companies that were making scrubs were really just licenses of other companies. The product was ill-fitting, uncomfortable, baggy, boxy, harsh fabrics, nothing that you or I would want to wear to work every day. And so, and they all sold through wholesale. Sally's Scrubs in Kentucky, there's 5,000 mom-and-pop scrub stores across the country where healthcare professionals were subjected to walking into a rack of black and a rack of navy next to bedpans and knee braces. I mean, that was the experience. And so we changed all that. I think since we've gone public and there's been a bit of a spotlight on SIGs, other companies kind of popped up and tried to do what we do. But these are subscale players. They are about one-fifth to one-tenth our size. And they really are just trying to really emulate what we do. And so I think the difference with us is we've built an authentic brand. We've built a community around a profession. We focus on not just making incredible products, but also impact and ensuring that we can make this world a better place. And so I think this is a really exciting time. where we're going to continue to widen the moat, right? This is our time to widen the moat between us and everybody else, especially with some of the tariffs that are hurting others more than us.

Very clear. The business has changed a lot in the last few years. You've gone from mostly a scrubs company to now on shift I can never say it as well as you do. No, we're just going to pause for a second. Can you provide an update on how you're thinking about the growth opportunities from here? Do you see more growth ahead in scrubs versus non-scrubs, U.S. or international? There's a lot of different options there.

Sure, and I think that it all starts with product, right? We're a product-first company, and we have been mainly a scrubs company, but I think what's so exciting is that as we continue to mature, all of these other categories have become a bigger part of the brand. You know, obviously scrub work is going to continue to grow. That's the replenishment dynamic. But by your second, third, fourth purchase, you're coming back. You're adding your under scrub. You're adding your outerwear. compression socks. Brooke and I have a compression sock joke. All right. Footwear. We have all of these other pieces that you need to do your job well. Why are you wearing Patagonia or North Face in a hospital that's meant to go rock climbing or hiking? It's not meant to be worn in a hospital as a healthcare professional. It doesn't have a pocket for your stethoscope. It's not antimicrobial. It's not liquid repellent. It's not all these things that you need to do your job. And so I think underscrubs massive opportunity, scrub jackets, outerwear, compression socks for where all of these we have amazing footwear partnership with New Balance that's been really successful. And so, you know, much more to come as we think about how our health care professionals are building that uniform. How are they building into our layering system? And that I think is why you've seen, we've had now two of our highest AOV quarters. And the exciting piece is our healthcare professionals spend a little over $200 a year with us. Healthcare professionals spend about $550 on their uniform. And so there's a massive opportunity in terms of share of wardrobe. And they're already coming back, about 70% of our revenue is repeat revenue. So how do we continue to have our community come back and not just replenish their scrubs, but also buy all these other items? And that's the opportunity and that's what's really exciting about where we are today.

Let's drill down a little deeper into your core U.S. scrub market. As you think about the drivers of U.S. scrubware going forward, do you think it's mostly from new customer acquisition, from penetration of closets, as you just mentioned, or something else? I mean, it's all of it.

It's all of it. You gotta do all the things well. But getting healthcare professionals that don't know yet about FIGS, I mean, we have 20-something percent unaided brand awareness, about 50-something aided. You could fix that. Our brand awareness is still not there, right? There's healthcare professionals in the middle of the country that don't yet know about FIGS. There are healthcare professionals around the world with less than 1% market share internationally. that don't yet know about FIGS. And there's no other reason, once you choose FIGS, there's no other reason to try another uniform. And so I think it's a lot of opportunity to bring new healthcare professionals into the fold. But the thing that I think is very, very exciting is that a lot of consumer companies have to start at zero every year. We have this repeat business that compounds over time. And so I think, and like I said, we're under-penetrated from a share of wardrobe perspective. So they, you know, as you fall more and more in love with the brand, but you know, you're trying, okay, now I trust you even more. I'll try that item that maybe I wasn't, you know, I did go to Patagonia and now I can get an even better fleece with figs. And so there are these dynamics that I think, you know, from a new perspective, from a repeat perspective, we are focused on both. Both are exciting and the repeat drives the new. Right? Healthcare professionals are in highly dense environments. Hospitals are like Disney World in terms of how concentrated it is. Everyone's talking to everybody. Oh, we're in the break room on the way to see our next patient. What did FIGS just launch? I mean, that's how like die hard fanatical. I know you all in the investment community, so maybe you don't understand. Talk to healthcare professionals. They're obsessed with us. What did FIGS just launch? What color did they just drop? What style did they just drop? Everyone. Oh, I'm going to check that out. That repeat customer, that loyal customer driving that new customer for free. Our largest customer acquisition is word of mouth. People talking about us to their friends and their colleagues and getting them to come join us. And that's, what's really exciting.

In your scrubs businesses here, you have a fit initiative. And that's been a focus for the company. At what point will you have the updated fit of your scrubs fully penetrated in your inventory and your assortment? And how are you managing customer expectations during the transition?

Yeah. I mean, it's been a long road. My co-founder was our fit model early on and she's really little. And so we graded off of her bad decision, never do that. And so some of our women's styles were a little too small. This has been a journey for us. I think we're at the final stage of finally once and for all getting our fit exactly where we want it to be. It's interesting because if you talk to health care professionals, they'll say FIGS is the best fit. But over time, there's been some inconsistency once again because of the grading. I don't know how many are in apparel, but this is the thing. So, you know, we're excited to move past that. This is going to be, I think, a really exciting thing for the community to understand that once you're this size, you'll always get that size. And we're almost on the other side of this transition. And I think we've been really transparent with our community. Our whole ethos is to be honest, transparent, let them know what we're doing, how we're doing it, when we're doing it. And so that's what we've done throughout this, and we'll continue to do it going forward.

Moving to your lifestyle and your non-scrubware business, you've got a much wider assortment there versus what was available in 2020 and 2021. But non-scrubware was a little softer last quarter as a result of fewer launches. How are you thinking about the opportunity there, and what is the sustainable growth rate of that business? Sure.

Actually, I was with Andrew Jassy, not to drop names, CEO of Amazon, and he said, a quarter is 90 days. How much things can change in 90 days? So I don't know, it sounds like non-scrubs in the 90-day period was soft, but I think if you look over the long term, and that's where we're focused, non-scrubware is a really huge part of the business, as I was explaining. The opportunity is massive. you know, all of these pieces that you need to do your job. How are we solving problems for you on your under layers, on your outer layers? This is all, you know, opportunity. And I think as more and more healthcare professionals are with us over time, they'll continue to build that out. I think, you know, yeah, I mean, What is the sustainable growth rate? I'll let Sarah answer that.

Yeah, I mean, we've talked about all of the opportunities within non-scrubware and that being an opportunity to expand our wallet share. And we haven't given an exact growth rate yet, but it's also relative to our scrubware business. So when we look at it in terms of proportion, we're at roughly 20% of the business being non-scrubware. that will continue to increase over time. But again, relative to Scrubware, we see opportunity within Scrubware to continue to grow as well. So the two of them together is a really great combination for us to fulfill on our goal of really building out that whole closet for healthcare professionals. Great.

Let's turn to marketing. Pfizer is set to do its second Olympic marketing campaign next year. What are you most excited about for this event and how does it build on the momentum of the last and first Olympics campaign? Are there any notable changes in the way that you're utilizing the Olympics for marketing such that you can drive new customer acquisition and retention?

Sure. So for those of you who don't know, we were the first company ever to back the Team USA's medical team. And actually, it was the first company ever for any country. So no company has ever sponsored the medical team behind the athletes. That's the coolest thing ever. So we partnered with Team Yote and did that. And we had an incredibly successful, awesome, amazing campaign. If you haven't seen our commercial, it takes heart to build bodies that break records. Check it out. It's awesome. All right. So that was summer 2024. This partnership goes through 2020. 30 and beyond. We're really excited about continuing to partner with Team USA and their medical team. So Winter Olympics coming up is going to be great. I can't divulge all the incredible details around it, but it's going to be good. And once again, I mean, it's, you know, people don't talk about it. People don't talk about the healthcare professionals that made that knee so Lindsey Vonn could ski down the mountain and win a gold medal at age, I don't know how old she is, but 45? I mean, it's like unheard of, unspoke. Like, look at Djokovic. Did you guys see that last night? I mean, 38 years old. That's healthcare. That's not him. All right, a little bit of him. That's healthcare professionals making sure that his body could perform at that level, right? And so I think that putting a spotlight on the people behind the athlete is a big priority of ours. And there's no bigger stage than the Olympics. Team USA, awesome, and so more to come, but it's been an incredibly exciting partnership and really, really psyched about what we're going to do in Milan and Cortina.

Are you going to use the same music from last time?

Head, shoulders, knees, and toes? No, but I thought about it. Clear.

From a marketing efficiency perspective, what are you seeing in ROAS trends today, and what's the right level of marketing spend as a percent of sales?

Yeah, I would say that we've really been working on building out our marketing. So I would say a few years ago, we were really just bottom of funnel. We've been working to invest in upper funnel. Last year, this year, building out to be more full funnel. And with that approach, we've seen efficiencies gain in both our CAC rates have been coming down. Our row has been going up. And so that's been really exciting for us to see. So we know the strategy is working. We've also seen, you know, as a result of the combination of really great product with these marketing efforts, a reinvigoration of our customer funnel. So we're seeing positive trends in terms of acquisition and continuing to grow our active customer base. And I would say, you know, last year our marketing expense was, you know, at a higher rate just given that Olympic investment. We'll see it come down a little bit this year with the efficiency. But, you know, there's also opportunity for us to continue to invest. You know, we have 2.7 million active customers, which is actually pretty small relative to the healthcare base that's out there. So we do need to invest in awareness, and that's what we're doing, and it's working. So we'll continue to make investments behind that.

Let's switch to your community hubs and the really exciting openings that you have there. You've got some plans to open some community hubs in major metropolitan areas across the country and also hubs for healthcare workers. Can you walk through some of the learnings that you've taken from your first two community hubs and how that will impact your plans for operating the next few?

Sure. Do you want to take this?

Sure. We have two community hubs right now. One of them is in LA. One of them is in Philadelphia. The one in Philadelphia just opened last year. We are early on in understanding the data points there, but really great to see that these are both an acquisition and retention vehicle for us. Over 40% of the people that are transacting in the store are new. And so that's really, really awesome stat for us. And we are going to be opening three more stores this year, which is really great. So that one will be in Houston. We are also going to open in New York and Chicago. So those come on in Q4 of this upcoming year. We're excited to bring the brand to more cities. And as we think about next year, we are building a pipeline. And we will give more specific guidance on how many more stores we will open. But we will open more stores. And yeah, really excited about this being the way that we can continue to build awareness, expand on building our customer base, and just bringing our brand to health care professionals.

I know it's really early days, but are there any productivity or profitability comments that you can make about the community hub?

Well, it's hard because we have two stores that are both very different. So one of them is like 1,000 square feet. The other one is 4,000 square feet. So we have different learnings from two very different format stores. I think what we will see in the upcoming stores is about 1,500 to 2,500 square feet. Um, you know, and our goal is that these will be profitable and creative. So that's what we're working towards and we'll have, you know, a lot more data points that come from the next three that we open, um, that we can give more, more visibility and clarity on the metrics, um, going forward.

Switching to another growth driver of your business, um, teams, um, you've been executing against targeted investments in the team's business this year. And I think you've already hired some additional leadership for that business, including a sales force. How big is the team's business today, and how large can it become over the next few years, in your view?

Yeah, so today I think it's a smaller piece of the business, but it's really exciting, especially from an international perspective. In the U.S., 85% of healthcare professionals buy their own uniforms. So, you know, it's a DTC business. It's why our e-commerce business has been so successful. And that 15, well, you talk about teams in the U.S., it's really selling into that 15% of institutions buying on behalf of their team or their employees. But internationally, that number is higher. That number, you know, the B2B part of the market internationally is a bigger slice. And so we're really excited about what we're seeing in terms of teams an international overlap. And we're agnostic. If you want to buy for yourself, you can come to us. If you want to buy for your team, you also can come to our team's business. And so really having both platforms with our Salesforce now going outbound, getting the best institutions to be part of FIG is really exciting. And it also ties a bit to community hubs because as we're partnering with medical schools, nursing schools, dental schools, as we're partnering with large hospitals, Mayo Clinic, Cleveland Clinic, you know, why not have FIGS have a community hub, a store within those locations. It makes sense. And so a lot of synergies between all of these different pieces of the business. And there's never been, an amazing B2B platform for healthcare where you don't have to talk to somebody if you don't want to. You can just go on the site, order for 1,000, 2,000 sets of scrubs, your jackets, your underscrubs, you check out. If you want to talk to somebody, you can. We have a team to do that, but you don't have to. And so that's like a really beautiful thing is having that technology now, 2025, I can't believe no one created it, really makes sense for these large institutions.

Very clear. It's interesting that Teams is also a big unlock for international because international has been a real growth driver for your business and has accelerated recently. Can you discuss what trends you're seeing out of the more established international regions versus your newer markets and what you're thinking about from a new market strategy? Sure.

I can touch on it and then if you wanna jump in, but I think international, it's still like I feel like we just started. Think about what we did in the US in terms of really, we have 400 plus ambassadors, we have the most influential voices in healthcare that are representing us across the healthcare landscape. We just started that internationally, really localizing our messaging, localizing the brand, getting the right people to represent us in all of these different markets. You know, we're 45 countries, about half of that we've basically launched in the last year, and we're just getting going on really getting the brand positioned in the right way by market, getting the right assortment, the right message, the right ambassadors, the right community elements, all in place to go after that. And the right team piece, right? Which conferences are we, you know, having a presence at? So there's a lot more to do. But it's exciting to see the trends that we've had in the international business.

Yeah, I would say from a geography perspective, we've seen really strong growth rates in Mexico, in Europe, as well as the Middle East. You know, we're growing in all of our markets. Those ones just outpacing some of the others. Some of our more mature markets, Canada, Australia, still seeing good growth there, acceleration in growth rates versus what we saw in Q1. We know our localization strategies are working to drive those growth rates, and we're early days in really rolling out some of those more localized strategies, so we do see excitement there to continue to drive growth going forward.

How important is the team's business in contributing to your international growth?

I mean, most of our international business, most of our international business is not teams. We think that's a huge additional growth lever in the future. But, you know, I think even if you get, it's interesting, like even if you get a set for your employer, let's say you're in the UK, you know, you're like, this isn't great. It's not big. you're coming to FIGS you're buying three more sets or five more sets from us and so eventually we'll get that institution to also buy from us but even if they're getting a set let's say it's a team aspect they're still coming us directly d2c so there's a number of things at play and once again our goal we're agnostic however you want to buy from us we want to be where you want us to be um and so that's the goal very clear

Switching gears to tariffs and margins, you recently updated your assumptions for tariffs. How should we be thinking about the potential headwind from tariffs into next year as you annualize that cost into your inventory? And how are you thinking about the potential timeline for full mitigation?

Yeah, so I would first start with just sharing, you know, 85% of our business is in the U.S., so we do have quite a bit of exposure to tariffs. The other piece is really on our average costing. So it's going to take some time for those tariffs to work their way into the P&L. So in 2025, each quarter will get progressively more impacted by tariffs, and that will have an impact into 2026. But we've seen success so far and have a good roadmap ahead for how we'll mitigate some of those tariffs. We've been successful in going after both inbound and outbound freight opportunities, specifically within gross margin. We have worked with our vendors in terms of costing, seeing some opportunities there, both inbound and outbound, as I mentioned before. I would say that there are certain duty strategies that are part of our roadmap to look out for. You know, and how we're thinking about tariffs is, you know, we may not fully mitigate all of it within gross margin. We're looking to mitigate it throughout the P&L. So from an adjusted EBITDA perspective, you know, right now we've guided 2025 to about 8.5% to 9%, and we'll be working to, you know, improve that into 2026. So while the impact of tariffs will be bigger in 2026, we do see the opportunity to mitigate that throughout the P&L and deliver margin expansion into next year. That's exciting.

Great to hear. One of the opportunities for margin is in selling expense leverage within your SG&A. Can you talk about how big the opportunity is for you to flex those costs down? What can be taken out of the cost base? What temporary costs are rolling off? And where do you see the biggest opportunity? Sure.

So last year, we completed a large transition into a new distribution center. So our costs last year included quite a bit of transitory costs. When we opened the distribution center, we did have some Emily Early- learnings and efficiencies that needed to be scaled and so as we've come into 2025 we've really been working on improving the efficiency and operations of that we've now ramped to a place where we're no longer just. setting up, I would say that we've stabilized there. So we've seen some, you know, efficiencies come through in our Q2 results as a result of, you know, getting to that stabilized point. We've also been really working on our outbound rates. And so we've been working with, you know, expanding our carrier network, working on pricing, and we've seen benefit from going after those strategies. And there's more ahead for us to continue to work on. So with this new distribution center, we have built this to last for several years. So we are running at 50 to 60% capacity. So over time, as the business continues to scale, there will be leverage opportunities with the fixed costs that we have with the distribution center. We can continue to work on our efficiencies of operating within the space, given that we're still new there, and there's still opportunities for us to go after within outbound. those costs are coming down. We were saying, you know, for next year, we're probably going to be a year ahead of where we thought we would be by next year, but that should be more in line with, you know, the rates, the 23-ish percent rates that we had seen in 2023. So really happy with the progress that we've seen there. It's moved faster than we expected and still building a really great roadmap for us to go after there that we can continue to scale down those costs over time.

Great. One question that we're asking all companies at our conference is around pricing. And you've spoken about pricing as a last resort given the inflation sensitivity of some of your core customers. But could you share if you have any pricing increases planned for the second half of this year or into 2026?

Yeah, so at this point, there's nothing factored into our guidance around pricing. As I kind of mentioned, we're looking to offset tariffs, you know, with pricing being more of a last lever. We've seen really great success with our mitigation opportunities. We have a good roadmap ahead. And so, you know, we will continue to evaluate pricing. But at this point, we've not factored anything in.

Can you talk to us about the expectations for inventory growth into the back half of this year? Do you expect any disruption in shipments or timing associated with tariff buys?

Sure. So in terms of disruptions, not anticipating anything. I think we've built out a good risk mitigation strategy should anything come in, but not foreseeing anything at this point. In terms of inventory, our inventory balance grew 8% from a unit perspective, and that is compared to the 6% growth rate that we delivered. From a dollar perspective, it did grow by more than that, and that is really a reflection of the product mix shift that we're investing into, particularly within scrubware and non-scrubware. And there was a small amount related to tariffs. So as we go throughout the year, we are buying with conviction around the innovation and newness that we have from a product perspective. So we do think that unit growth will slightly outpace sales growth, but then on the dollar side, we'll have a much larger impact as tariffs come through in the latter part of the year.

Great. One question on promotionality. You've been intentionally pulling back on promotions. What are your plans for Black Friday and holiday, and what's an appropriate level of promotions for the business following the tests that you've done this year?

Yeah, for sure. So I just the journey here is that, you know, we have been strategically and purposely pulling back on promotion. We have the ability to do that because we've really seen strength in our underlying performance or business as usual non promo days. is really seeing good growth rates as a result of our investments into product and marketing. So using this as an opportunity to pull back and promo and really set the brand up for long-term strength. And so this is a purposeful decision It's had some negative impact on total sales, and so that we've guided to. And our promotional strategy has really been about pulling back on the promos that were more site-wide. We're going to continue to have promos, but have it be specific to events that celebrate healthcare professionals. So Nurses Week is a promo that is unique to healthcare professionals and us. So we're going to promo at that time. We've done Match Day, which is another specific event for healthcare professionals. So we've promoted around that. And Black Friday, Cyber Monday is something that we will continue to do. So that will remain, and we will pull back on some of the promos in the back half of the year outside of Black Friday, Cyber Monday. So how we're structuring that is very similar to what we've done in previous years. No major changes planned there.

Great. With that, I'm afraid we are out of time. Trina, Sarah, it was so great to spend time with you today. Thank you for your time and for this session, and thanks for everyone in the audience for tuning in. Thank you. Thank you.