Full Year 2021 Figs Inc Earnings Call
Good afternoon, and thank you for standing by welcome to the fix fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session and there.
Instructions will follow at that time.
Be advised that reproduction of this call in whole or in part is not permitted without written authorization from fix.
As a reminder, this call is being recorded I would now like to introduce your host for today's call Carrie Gillard, Vice President of Investor Relations Ms. Gillard. Please go ahead.
Good afternoon, and thank you for joining today's call to discuss <unk> fourth quarter and full year 2021 results, which we released this afternoon and can be found in our earnings release and shareholder letter on the <unk> Investor Relations website at IR Dot where fags dotcom.
Presenting on today's call will be Heather happen in Trina sphere, our co Chief Executive Officer, and Daniela Kerry <unk>, our Chief Financial Officer.
As a reminder remarks on this call that do not concern past events should be considered forward looking statements. These may include predictions expectations or estimates, including about our future financial performance market opportunity business plans and operational capacity.
Forward looking statements involve substantial risks and uncertainties and actual results could differ materially from those mentioned these risks among others are discussed in our shareholder letter and our SEC filings, which we encourage you to review you should not place undue reliance on any forward looking statements, which speak only as of today and will undertake no obligation to update or revise finally.
This call will contain certain non-GAAP metrics, which we believe are useful supplemental measures for understanding our business reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in the shareholder letter we released today on the Investor Relations portion of our website now I'd like to turn the call over to Heather happen co Chief Executive officer of fixed.
Scary good.
Good afternoon, everyone. We appreciate you joining us for our fourth quarter and full year 2021 conference call.
Before we get started I just wanted to say how honored we are to serve our health care community every day.
They are why we exist.
Now for our results our financial performance demonstrates the incredible power of our business model as we delivered an exceptional combination of revenue growth profitability and free cash flow in.
In the fourth quarter, our net revenues were up 43% to 129 million.
Which was larger than our entire business in 2019.
This is an amazing achievement underscores the rapid growth in scale, but we have accomplished in the past two years.
For the full year, our net revenues increased to 420 million up 62% on adjusted basis.
Driven by both strong acquisition of new customers and increasing annual spend from our existing customers.
Across our key metrics.
Our active customer base grew 46% to $1 9 million.
Net revenues per active customer increased $22 year over year and $39 over two years.
We delivered a 12% increase in our E O V $205.
We increased our repeat customer revenues to six 8% up from 62% in 2020 our.
Our nascent international business tripled.
And we achieved this growth while also generating a 105 million in adjusted EBITDA, a 25% adjusted EBIT margin.
We delivered this outstanding performance through product innovation disciplined execution.
And by leveraging our deep understanding of what our customers want and need from the 10 years of engaging with them every day.
Our accomplishments are also a result of building a management team over the past 10 years that is not only committed to our community, but its world class at running a high growth business.
From product design, and innovation supply chain marketing or any other Astra different company. We are a team that delivers extraordinary results year after year that's.
That's driven by clear mission to celebrate empower and serve those who serve others.
And it is through this mission that we will continue to enrich the lives of the health care professionals for years to come.
I truly believe we are just getting started.
What we are creating is more than just product. It's a movement within the health care profession with a long runway of growth ahead, and we're so grateful to be afforded the opportunity to inspire and create the world are awesome humans want to live and with that I will hand, it over to Trina thinks.
Thanks, Heather and.
In 2021, we delivered $420 million and net revenue over 60% adjusted revenue growth over 70% gross margin.
105 million in adjusted EBITDA, a 25% adjusted EBITDA margin and 64 million of positive free cash flow all at the same time, which speaks volumes about the strength of our business and our maniacal focus on operational excellence, we're able to consistently before.
At such a high level, because we flipped the entire paradigm of this industry on its head from our products to the experience to our community and we've gained even greater momentum in 2020 one as we further disrupted the industry.
Let's start with product we brought performance fabrics describes to create an unmatched combination of comfort durability function and style with technical attributes like four way stretch moisture wicking and breathability. This did not exist before pigs, we changed the game and set the new standard with over 80% of our business and 13 core styles.
Innovating on the core remains Paramount to our long term success, that's why in 2021 and that's been heavily into building out our product innovation and design capabilities to ensure we have the best team in place to continue to push boundaries and shape. The future one of the many ways, we're growing our scrubs businesses by creating franchises around our 13 courses.
While in 2020 , one we introduced the highway highway system more on yola pants for women as well as the 10th insulin pen for men.
These variations on our fan favorites provided new opportunities for us to meet the unique needs and preferences of our growing customer base.
And our customers, both new and repeat loved these iterations on our core for example, the high Waisted version made up about 40% of ours. The more sales in the second half of the year.
As you've heard us say before health care professionals were more than just the scrubbed top and pants. So we have built products that go far beyond scrubbed driving innovation across our layering system from base layer to outer layer to find new ways to address the evolving needs and changing environments of our health care community. This holistic approach Cup.
With our almost weekly product drops has completely offended how health care professionals engage with their uniform complete.
Completely different from the typical Scrubs company, we launched over 100, new styles across all categories in 2021 with strategically shallow buys to create hyphen drive traffic our health care professionals stay up until midnight to see our latest release and buy it before it sells out a behavior that was never associated with scrubber before fixed this merchandising strategy drive.
Hi, Roby and revenue per customer as our health care professionals come back over and over to replenish try new styles and layer on our lifestyle offering this dynamic is impossible to replicate.
Our health care professionals work as physical Theres shifts are long and their time is valuable and that's why we transformed the shopping experience eliminating the friction and inconvenience of the outdated distribution model by going direct to them online and as E. Commerce continues to accelerate and demand shifts online. We are in the best position to capitalize on this momentum.
The largest direct to consumer company in our space.
There was no one else in our industry like the digital scale speed and data to understand the needs of the health care professional and that's because the vast majority operate through a wholesale model, where they don't have any connection to the end customer as for the few DTC players. Our next largest competitor is a small fraction of our size as a result, our data network is more.
Much more comprehensive than our competitors and gives us the opportunity to driving greater loyalty through more precise targeting personalization and engagement.
As we grow and scale, our datasets gets bigger and smarter.
For example in the fourth quarter, we made updates to our sites at future Mortell ARD and personalized content using the immense amount of data we get from our customers. We were able to segment. The site. So that Kelly a nurse in Houston, So a completely different imagery content and product offerings, then Jacob and oncology resident in Boston as a result, our conversion in the fourth.
On these personalized experience experiences was almost double its previous rate.
Now, let's discuss operational excellence I want.
To make it clear that our ability to consistently deliver result did not happen by accident, it's a function of our incredible focus and discipline and the strength of our team.
Our Chief operating officer, Devin duct Diego, who has been with our company for six years together with her team has executed in the most unprecedented environment to rapidly scale, our business to more than four times its size in just the past two years, our unique business model has several key differentiators that have enabled us to better withstand the Mac.
So supply chain challenges.
Nearly 90% of our product is made from a single fabrication, which provides our manufacturing partners with high volumes of consistent capacity. Additionally, almost half of our revenues are generated by 13 core styles in core colors.
That half of our revenues are season, what enables us to produce large volumes farther in advance and hold greater quantities in our warehouse with almost no inventory risk compared to traditional apparel companies. These differentiators are incredibly important because as transit times fluctuate freight rates rise and labor shortages.
Our business model is able to endure these near term pressures and still deliver best in class annual gross margins.
70%.
And most importantly, we get the products to our health care professionals that they need to do their jobs.
All of this our amazing products horses are superior experience, our operational execution has enabled us to build a deeply loyal and passionate community.
We changed the way health care professionals engage shop and feel about their uniforms and this is reflected in our loyalty metrics.
For new customers about half of them come back and buy from US a second time within one year customers or customers who are active in their second year are with us for life as we see over 95% retention from year to year, three and as they come back to us again, and again to replenish their scrubbed their brand affinity grows as does their overall spend and LTV.
Our business is unique it's non discretionary and replenishment driven meaning greater predictability and consistency. This is a critical advantage for us compared to other consumer brands as almost 75% of our revenue is routine in the next year, providing a solid base for us to build.
Upon as we grow and as we acquire more customers and turn them into repeat purchasers this dynamic compounds.
I thought I reflect on our outstanding 2021, and everything we've accomplished over the past 10 years I am increasingly confident in our roadmap and our ability to transform and grow the $12 billion of U S market a figure backed by research and survey work from a top independent consulting firm that we engaged as part of our IPO.
No.
The Calgary industry has incredibly compelling fundamentals.
Our industry has mandated non discretionary recession resistant has strong replenishment dynamics as health care professionals need to wear their uniforms every day.
And even with the burden our community has endured over the past two years U S health care jobs are expected to be the fastest growing job segment over the next decade, adding nearly two 6 million new job.
Additionally, we ended the year with a record one 9 million active customers, which represents less than 10% of the over 20 million health care professionals in the United States and less than 2% of the over 115 million health care professionals around the world.
So there's a significant growth opportunity for years to come as we continue to add more often humans to our community.
We've barely gotten started.
Let's break down the $12 billion number a bit more from a spend perspective.
In this study the $12 billion is comprised of square scrubber lab coats medical shoes scrub caps and compression sock, it's estimated that health care professionals spend approximately $570 annually across these categories of which about $330 is spent on scrubber.
Our data shows that the average customer that comes back to fix spent almost 10% more than that 330 dollar figure in their first year and they continue to spend more with us over time.
And our top decile spent almost two and a half times that $330 just on their scrubbed. So as we continue to her first time customers into brand evangelists are premium pricing are highly effective merchandising model and our commitment to innovation allows us to drive this number even higher.
As it relates to the categories outside of scripts lab coats medical shoes, grub caps and compression socs.
What we offer is just like with scrubbed totally revolutionizing what these could it categories traditionally represents and we're still significantly underpenetrated them underpenetrated in them today, we are changing that because these products like scrubbers have been overlooked undervalued and created without the end customer.
Mind and no one is better positioned than fixed to do that.
And not only are we innovating a need select categories were also completely changing the game on everything outside of this $12 billion industry. The majority of our lifestyle products from under Scrubs to outerwear never existed for health care professionals before fixed and they are clearly resonating with our community as our lifestyle grew too.
Almost 17% of revenue in Q4, we are redefining the very definition of a uniform, while expanding and growing the market and the process.
Let me be Crystal clear, we believe fixes and a very strong position to continue to take market share, but more importantly, we are creating the market as we innovate on our products improve the experience and provide our community with what they want and what they need and in many cases, what they didn't know they wanted or needed to.
<unk> 2021 was an incredible year for us in our first year as a public company, we delivered on what we set out to accomplish and exceeded all of our expectations.
And we are excited to build on that success in 2022, we will continue to invest behind what we do best we are doubling down on innovation growing brand awareness, adding new awesome humans to our base deepening our relationships within our community to drive further loyalty and expanding on our nascent international and lifestyle businesses.
Let's dive deep into international for a moment we.
We tripled our international business in 2021, affirming that health care professionals around the world are similarly, underserved and want a better product and a better experience.
We also proved that we could expand and grow beyond the U S. With the same strong fundamentals, we see domestically maintaining our robust <unk>, our retention and our gross profit profile in Canada, Australia, and the U K and.
In 2022, we're going to continue to build on this international expansion, we plan to enter new markets. This year and we're going to use the same discipline approach to market selection utilizing our site traffic and strategic understanding of market dynamics to determine where we launch next with.
With international comprising only 7% of our business in 2021, we have an enormous runway of growth ahead of us and we cannot wait to get even more often humans into fig.
In closing we have never been more confident in our ability to reach annual net revenue of about $1 billion by 2025, we have just scratched the surface in terms of what we're capable of and will continue to grow and scale by remaining focused on our purpose for existing to serve our health care community.
With that I will hand, the call over to our CFO , Daniela turn Schein, who joined <unk> in 2018.
And yellow knows our company inside and out and in the years she's been at figs, Daniela had been as responsible as anyone for the unique combination of revenue growth and profitability that we've achieved in terms of what what's figs needs in a CFO . There is simply no one better positioned than Daniela her deep knowledge in.
Passion for the brand combined with her deeply analytical and data driven approach is what helped figs go from less than $55 million in revenue when she joined to over $400 million. Today. We are so excited to have her as our CFO and I have no doubt she will continue to lead us forward.
<unk> and delivering on our long term targets and growth ambitions Daniela. Thank.
Thank you Tina and good afternoon, everyone I want to first say, thank you to Heather Trina and the board for the opportunity to serve as <unk> Chief Financial Officer. It has been an honor to help grow and scale. This inspirational brand over the last several years and I could not be more excited to continue to serve our community of often humans in my new role.
<unk> full year financial results exceeded our expectations driven by continued robust demand for the brand across both new and repeat customer the strength of our lifestyle expansion across categories and strong holiday sales.
<unk> delivered an outstanding Black Friday, cyber Monday week that grew 54% year over year on top of an incredibly strong 2020 season, while concurrently being less promotional.
Looking at Q4, we successfully executed against our pricing strategy selling more product at full price that almost no impact to our demand. This strategy resulted in almost 300 basis points of discount rate improvement year over year and was a big contributor to our exceptional growth and profitability for the quarter.
And as a result of the strong demand that we saw our net revenues for the quarter exceeded our previous guidance by $10 million.
Now, let's dive into the financial results.
Net revenues for Q4 were up 42, 7% to $128 7 million compared to Q4 last year our.
Our performance was driven primarily by strong order growth from both new and existing customers, we acquired more new customers in Q4 than ever before growing our active customer base to almost $1 9 million.
And despite the exceptional growth in new customers almost 70% of our revenues in the quarter were still from repeat customers.
Net revenues also benefited from a 15% increase in average order value to $113 in the quarter compared to $98 in Q4 2020.
We drove record lifestyle adoption, partly driven by expanding the breadth of our outerwear offerings, including our newsletter knit and puffer jackets.
This strategy helped drive higher <unk> in the quarter through higher price points and increased units per transaction as customers wanted to complete the full layering system.
Perhaps more importantly, it provides a clear indicator of the greater demand for our brand beyond our core scrubbed Blair and our ability to further grow our existing categories by building depth within our collections.
Finally in addition to the improvement in <unk> for both the quarter and full year net revenues per active customer increased to $224 in Q4 up $22 or over 11% year over year.
This is an important metric that we're focused on because it shows us how much our customers are sending us with us not just in one transaction, but over the course of an entire year.
And as that number continues to grow it means our customers are more engaged and spending more with us over time.
Gross margin for Q4 decreased 110 basis points to 69, 9% compared to Q4 2020.
This change was primarily due to higher use of air freight as well as higher freight rates offset in part by better product costing.
Gross margin was considerably better than expected, primarily due to our strategic decision to reduce discounts during the quarter.
As a result, we were able to use this pricing power to help offset our elevated airfreight spend. Additionally.
Additionally, while aircraft expenditures were still elevated compared to the prior year, our actual spend came in much lower than expected approximately $6 million in the quarter versus our previous expectation of $8 million to $10 million.
Moving to operating expenses.
Selling expense for Q4 was $25 6 million, representing 19, 9% of net revenues compared to 22% in Q4 2020.
We experienced increases in shipping rates from our carriers and higher fulfillment expenses in the quarter. However, we were able to offset these headwinds primarily due to the solid increase that we drove in AOA.
Marketing expense for Q4 was $16 6 million, representing a 12, 9% of net revenues compared to 14, 5% in Q4 2020. This.
This decrease was primarily related to efficiency of performance marketing spend and lower than planned brand spend on the digital marketing side, we continue to see efficiency and return on advertising spend as a proportion of net revenues driven by repeat customers grows over time as we think about building our brand for the long term, we will continue to.
Invest these gains back into growing brand awareness through top of the funnel marketing initiatives.
General and administrative expense for Q4 was $31 3 million, representing 24, 3% of net revenues compared to 22, 2% in Q4 2020. This.
This increase was primarily driven by noncash stock based compensation.
The incremental capabilities, we've built over the past year in key areas, such as product innovation and merchandising and increased costs from being a public company.
As we look ahead into 2022 and beyond we will look to balance investments into key capabilities across product innovation digital experience and talent, while scaling our operating expenses to continue to drive profitable sustainable long term growth.
Taking this to the bottom line, our net income was $12 6 million or <unk>, <unk> and diluted EPS for the quarter.
Adjusted net income was $18 6 million and diluted EPS as adjusted was <unk> in Q4 compared to <unk> <unk> in Q4 2020, the increase in diluted EPS as adjusted was primarily driven by the increase in adjusted net income year over year as our operations grew and we scaled efficiently partly.
Offset by increased dilution.
Finally, our adjusted EBITDA for Q4 was $31 9 million and adjusted EBITDA margin was 24, 8% for Q4 compared to 23, 7%. In Q4 2020. This change was primarily driven by efficiencies in marketing and selling as we have scaled offset by lower gross margin due to freight and investments in <unk>.
Alan.
And most importantly, we are incredibly proud of our huge milestone of delivering over $105 million of adjusted EBITDA for the full year, the discipline and execution required to deliver exceptional top line growth paired with profitability is fundamental to our business model, we continue to produce.
Tangible cash flows while ensuring we deliver against our long term growth ambitions moving onto the balance sheet, our cash position at quarter end was strong with cash and cash equivalents of $195 4 million.
For the full year, we generated free cash flow of $63 7 million up from $19 5 million in 2020.
The 227% increase in free cash flow year over year demonstrates our ability to significantly scale, our net cash from operating activities through high topline growth coupled with best in class execution.
Moving on to our outlook.
Following an exceptional financial performance in 2021, we are incredibly excited to continue to deliver strong top line growth and are confident in our strategic roadmap for 2022 and the years ahead.
Based on our current visibility, we expect 2022 net revenues to be approximately $550 million to $560 million representing growth of 31% to 33% compared to 2021.
From a quarterly flow perspective, we expect our growth rates to be relatively consistent throughout the quarter.
From a gross margin perspective, we are monitoring the dynamic macro volatility being experienced by every company.
While we continue to navigate these challenges effectively we are not immune to them.
As a result, we expect 2022 full year gross margin to be down slightly year over year. This is a result of higher freight rates coupled with the use of airfreight to combat increasingly unpredictable transit times on the water.
The pressure from elevated freight and costs in the near term is more than offsetting the continued benefit we are seeing in our business from lower discounts and improvements in product costing.
We feel confident that we will continue to navigate these short term pressures with best in class execution and over the long run be able to realize efficiencies and margin as we scale.
As a high growth company, we will continue to make the necessary investments to support our strategic roadmap and long term expectations. We remain confident in our ability to deliver a 2020, you 2022 full year adjusted EBITDA margin rate in line with our long term target of 20%, which is truly amazing for a company of <unk>.
Our size and scale with our growth expectation when looking at the factors that drive our adjusted EBITDA expectations for 2022.
First as I mentioned above we do expect some pressure from gross margin.
Within operating expenses selling is expected to delever slightly from increasing shipping rates due to COVID-19.
And marketing and G&A is expected to stay relatively consistent as a percentage of net revenues compared to 2021 as we continue to grow our brands and make critical investments in technology system and innovation to support our long term both.
For the first half of 2022, we will also be Comping, a period with no public company costs, which have a material impact to our G&A.
Our business model, coupled with our best in class team have enabled us to deliver a unique financial profile, where we can continue to invest in our business to support our high growth expectations, while still delivering 20 plus percent adjusted EBITDA margin as we say here at peg if it was easy everyone would do it it is not easy to.
This level of performance and we will continue to push ourselves to do so.
We see tremendous opportunity ahead of us on top of our strong results today, we are underpenetrated in the U S. Our lifestyle business is just getting started and our international opportunity is essentially untapped.
It's been an incredible journey, so far and I look forward to building on our momentum into 2022 and beyond with that I will turn it over to the operator to kick off our Q&A session first with our analyst community. After addressing their questions people then after a handful of questions received from our shareholders. This a platform operator.
Thank you if.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove a question. Please press star followed by two again to ask a question. Please press star one as a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question.
We will pause briefly to allow questions to generate.
Our first question is from the line of Adrian <unk>.
With Barclays. Please go ahead.
Good afternoon, you know good good job navigating what is just an extraordinarily difficult backdrop.
A question for each of you Heather can you talk about the attachment rate of noncore product the product extensions to the core purchases that you've been seeing lately for Trina can you talk about February month to date trends.
The gauge Daniela gave color on kind of a an equally measured growth rate over the four quarters, but just how are you thinking about where are you impacted by stimulus.
And how youre thinking about about that and then for Daniela can you talk about inventory purchases.
I know you're not doing as much air, but give us a little bit more help in Q1 and Q2 the impact of kind.
Kind of ongoing supply chain over $100 oil those types of new developments since we last heard from you on January 10, and what have you embedded into both the demand forecast and the cost forecast. Thank you so much.
Yeah.
Thank you Adrian.
To hear your voice.
Okay. So from a first question around our lifestyle offering it's been an incredible.
It's been incredibly amaze.
Amazing to see how our health care professionals are really utilizing the complete layering system or in our lifestyle business is 17 was 17% of our business in Q4, and if you look at the attach rate or.
Customers, 30% of our customers own a product outside of scribes own a lifestyle product, which is really incredible to see.
In terms of our February trends can't share too much, but we really arent seeing any drop off due to.
What's going on in the World and really feel strongly about our year going forward. Danielle I gave you some commentary around our outlook, but we're really excited about the momentum we're seeing in our business and 2022 was going to be another record year for us.
And as it relates to inventory I'll pass it over to Daniela.
Thank you for now as it relates to supply chain.
We are navigating some very fluid and evolving dynamics as it relates to inbound.
As we said in our prepared remarks, we do expect it to impact us in 2022, So we're seeing rates both for ocean and air are going to be higher and that increasing transit times and the lack of reliability that we're seeing in the ocean freight market is resulting in the need for airfreight were able to offset some of this near term pressure.
Through driving more sales at full price, but also continued product cost benefits as we scale I think most importantly, we believe we can continue to deliver on our best in class gross margin of 70 plus percent. Despite these near term challenges and we feel very confident in our ability to achieve the revenue guidance that we provided.
Sure.
Great. Thank you very much and best of luck.
Thanks Adrian.
Thank you Miss him.
Our next question comes from the line of John Kernan with Cowen. Please go ahead.
Yeah.
Excellent. Thanks for taking my question, good afternoon, Trina, Heather and Daniela and Danielle Congrats on it on a real nice quarter right out of gate.
Could you talk to.
<unk>.
Just the.
The revenue guidance is obviously very robust.
I'm wondering if you can provide a little bit more detail on the leverage on the operating expense line can.
I can understand that.
EBITA margin outlook for the year, but just curious if you could give us a little bit more detail given the level of topline growth. How we should think about G&A and opex in general and the dollar growth there. Thank you.
Okay.
John as we mentioned we are expecting the G&A line to remain relatively consistent as a percentage of sales year over year and as we said in our guidance. Our adjusted EBITDA margin floor is 20% and I think it's really amazing that our floor is a place where other companies in our space have probably never contemplated reached.
Especially in the near term and so as you think about 2022, you can expect us to do what we've always done which is effectively deploy capital in strategic ways and smart investments to really deliver on our long term growth plan. So youre going to see us continue to do that across marketing product innovation within G&A and technology and <unk>.
To ensure that we're continuing to build a strong foundation for us to grow.
As you've always seen we've invested in our business with great returns and we're going to continue to do so.
It's really rare raised their SKU companies that can do this to invest meaningfully in our business, while simultaneously sustaining a best in class adjusted EBITA margin profile and growing at 30%.
The one thing I would highlight is in G&A, we had a significant amount of stock based compensation that was non ordinary associated with our IPO. So I wouldn't expect that to reoccur in 2022, and it was about $56 million.
Got it that's very helpful. Thanks.
A follow up for either Heather Trina you bolt shot extremely confident in.
In the addressable market.
And particularly it sounds like diversification beyond scrubs and the core. Thank you talked about half of revenues are core styles and colors.
Margin profile look like in lifestyle, which I think you mentioned is now 17% of revenue.
Can you reiterate your confidence just in what Youre seeing in terms of addressable market, particularly in the core scrubs business. Thank you.
Sure, Thanks, Sean and I think what we've seen.
Is that are met all of our metrics are pointing to a sustainable runway of growth and the ability to penetrate well not only penetrate the $12 billion market, but accurately capture all this additional white space well beyond that that number. So you know as I mentioned on the call our customers are spending about <unk>.
10% higher than the average customer in the industry about 10% above that $330 number on their scrubber and our top decile spending up to two five times as much on just our scribes and then in terms of the lifestyle to your point, that's a massive opportunity that we feel.
We've barely scratched the surface and it's already 17% of ourselves and so from our are under scribes or under layers are outer wear our sweater knits, our puffer some of which had been brand new two to what we're doing in Q4 to our compression talks to our scrub capture all of these different products, we really are seeing the.
<unk> system resonating with our community and in a major way.
So you know as much as we're selling into Tam. We're also creating Kim we like to say here.
These companies sell into Tam and innovative companies create and that's what we're really looking to do create the market every day.
Got it thank you best of luck.
Thank you Mr come in.
Our next question comes from the line of Bob <unk> with Guggenheim. Please go ahead.
Hey, guys. Good evening couple of questions from me first on active customers. When you think about the growth that <unk> had you.
Can you just give us an idea.
Our assumption in 'twenty, two and then repeat customer growth went from 62% to 68% of sales you just talk about the drivers there and sort of the initiatives and where you think you can take that number. Thanks.
Thanks, Bob.
In terms of active customers. So we're really excited to continue to see this grow and we plan to expand it even further in 2022, we can't get into the specifics, but in 2022, we are planning to acquire more new customers than we did in 2021 on the repeat customer side really proud of our ability to expand that from 62% to 68.
Present in 2021 and.
We're going to continue to drive that with the same model that we've been doing right really focusing on engaging with our community and thoughtful and meaningful ways, an exciting product innovation and also really building out our lifestyle and continuing to drive really higher attach rates there.
Great and just a follow up question on <unk>.
On the replenishment side are you seeing any change in behavior on your customers.
Timeline stage.
Replenishment purchases.
So looking at our cohort dynamics, we've seen it remains really steady over time and I think you can see.
And our net revenues per active customer that's a metric that we're really focused on because it shows us not just our customers, how often theyre coming back or how much they're spending but really how much they spend over the course of an entire year. So we're excited to see that increased $22 to $224 and we're continuing to drive the same strategies to increase it even further.
Thank you.
Okay.
Thank you Mr <unk>.
Our next question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.
Hi, good afternoon nice.
Nice quarter congratulations.
So thanks, Brian questions I have just with regard to I know, we talked about supply chain pressure.
Pressures if you look at you.
He also mentioned some of the offset you have your distribution.
<unk> gross margins despite these pressures.
Look at these pressures.
I'm, assuming that they may continue for some time, especially with new challenges out there two zero consideration.
Lifting pricing on the products, so as to offset more culturally these higher supply chain costs.
As of right now, we don't see any need to increase our prices you know our goal as you know is to really ensure prices are affordable and accessible for every every customer every health care professional and we do feel like were.
Offering a great value for the product that we make.
You know our margins have been relatively intact right Theres really no need right now and we don't have any plans to increase our prices due to the dynamics at play.
You know when we have increased our prices in the past, we really haven't seen a drop off in the demand.
So we do have we believe our brand strength enables us to do that or if we see that we need to so that's kind of how we're thinking about some of the dynamics.
Across the industry.
That's perfect and then follow up question.
Over the past year.
Okay.
The supply chain disruption.
For the quarter.
Of course, you had what you would normally planned product launches for 'twenty two.
Yeah, I mean, I think one of the amazing things about how we've navigated the supply chain is that we get our products, we get them into our warehouse and we get them to our customers and you've seen that over the past two years I don't know another company that has navigated the supply chain.
Challenge better than <unk>, and you see that in the numbers and that's a testament to this incredible team that we have here.
Every now and then things shift a bit right seven days here or a week, there and we're able to move our calendar because we are a direct to consumer company.
But that's one of the big benefits, we have we're not waiting on a P O from some retailer and so we're able to move our calendar around.
Launched an amazing campaign every time, we launch over 100, new styles, new product loss share. So we're going to continue to.
Surprised a light engage our community in the most unexpected in incredible ways, but we do have flexibility around that because of the business model that we are in.
Alright, Thank you congrats again.
Thank you Mr Nagle thank.
The next question comes from the line of Michael Binetti with.
Credit Suisse. Please go ahead.
Hey, everyone. Thanks for taking our questions here and congrats on a great quarter.
And I guess, just a quick one on the model could you is there any way you could help us with any numerical besides the benefit you saw on the gross margin.
From the reduced promotions and the product sourcing efficiencies that you pointed to.
Just trying to think through.
The ability to hold on to that next year, how much of that is in your plan for next year, obviously, not knowing where the industry is going to go but just what you guys are thinking about and then I guess now with the benefit of two full years of financials isn't scaled up company EBIT have been pretty consistently in the mid twenties.
You know if you can walk us back a little bit of time here.
You know I think one metric do we have to watch carefully is the ability to keep the gross margins above 70% has moved beyond the really high margin core of the business and scrubbed. So you've answered some questions today about your confidence there.
Sounds it sounds pretty good so for grocers are going to stay in that you know that in that range above 70.
What what in your mind are the inputs are investments that we should think about in the scenario that would take you into the lower twenties on EBITA and I guess the same question on the upside.
There's an industry pressure on the margins right now, but what could go better than plan that can help you put up another year in the mid twenties.
Thank you Mike that was a it was a long question [laughter].
So looking at the gross margin, we're not going to get into exactly the specifics, but there were several things that really drove it to be higher than anticipated. The first of which is you called out is <unk>.
Strategically selling more product at full price and that was a big driver of the success that we saw and it's something that we're continuing in 2022 and plan to see the benefits going on through the year.
The second was improvements in our product costing especially across our core scrubber that helped offset and then finally airfreight just being better than expected as we near.
Negotiated better rates and we're conservative in forecasting so.
Those are those are the main puts and takes in a lot of those we expect to see continue in the year ahead.
Just want to reiterate though that this is a fluid situation and it's highly dynamic so we'll be sure to keep everyone up to date as things change and continue throughout the year.
And to your second question.
So yeah as we mentioned gross margin, we're seeing a lot of headwinds still feel really confident in our ability to be above 70 plus percent.
As that flows through to adjusted EBITDA were really focused on continuing to make investments.
Particularly in the operating expenses. So that we can ensure that we're really building this company the right way and continuing to.
Build the infrastructure to really support our long term growth. So I think we walked through each of the segments in the call, but we are really going to do the same things that you've seen from us before which is invest back in the business at really amazing returns.
And is there if I could sneak one more in is there any evidence from the lifestyle categories you build it out and you look at it a little more closely how much of that is going to.
Health care workers versus non health care workers.
Yeah. The majority the vast majority, 98% plus is going to health care professionals that are really it's not just oh. It's a fleet. This isn't an shifts relief that's been made to be worn indoors. Because hospitals are freezing that is a pocket for statoscope, whereas youre running around on your ship for 12 hours 16 hours getting to a patient.
<unk>.
All of our products and that's just one example, right all of our products are made for health care professionals to be worn to work at work from work on shift off shift had to tell you know we changed the game right. We changed the game, bringing a real layering system to every health care professionals. So they can look good feel good and perform at their best and that's what it's all about and we're going to continue to do that.
And build out these categories even further.
Alright, Thanks, a lot guys congrats again.
Thank you Mr Binetti.
The next question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.
Hi, Hi, this is Alex on for Lorraine. Thanks for taking our question you mentioned entering new International markets. This year can you elaborate on that opportunity a little bit, maybe which geographies you're targeting a well there'd be elevated marketing or region specific launches or any investment.
In distribution capabilities.
Thank you Alice and great great to connect so I think.
As we said international is a massive opportunity right only 7% of our business in 2021 is from the three countries that we're in today are Canada U K, Australia, and so we're gonna be launching a number of new markets. This year can't say exactly which ones yet, but we're excited.
And what we've seen in the countries that we're already in is that the financial profile is very much in line with our our U S business and so we look forward to seeing that continue in new markets that being said, it's kind of like what we've done in the U S right, where we gain efficiency.
As we evolve in our markets mature and then we're able to put those gains into newer markets. So.
Similarly in the new markets we're entering.
We'll be.
Investing more investing more behind obviously people in marketing and building out those businesses with the goal of reaching tipping points within those markets. So we can continue to evolve and grow into other markets. So we could we couldn't be more excited we are building a long term global brand for the next 100 years and you know.
The truth is it's like whether it's a health care professional in Kentucky or in Munich or in his symbol orin.
You know Mexico City, you have a pretty similarly horrible experience prior to pigs. So.
They want a better product they want a better experience and we are here to give it to them.
Thank you.
Okay.
Thank you Ms Hutchinson.
The next question comes from the line of Matthew <unk> with Piper Sandler. Please go ahead.
Yeah.
Yeah, just just one quick one for me given that you all are in digital business can you expand upon what you all have done or what you are doing to mitigate mitigate your outbound shipping costs.
Yeah.
Okay.
Yes, Im sorry go ahead Daniel.
Definitely and so what we've seen over the past year or so in 2021, you've seen higher rates due to COVID-19, and the way that we've mitigated. It today. It is by continuing to drive an increase in average order value and that's really helped to offset some of the pressures that we're seeing on the outbound supply chain and we're going to continue to look to do that as we comp.
In 'twenty one.
Thank you Mr Iger.
The next question comes from the line of Brooke Roach with Goldman Sachs. Please go ahead.
Good afternoon, and thank you so much for taking our question Trina Heather I'd, just love to hear a little bit more about your efforts to take that first time fixed customer and recapture them to turn them into a long term brand loyalists.
Efforts are you implementing to improve that recapture rate to well above 50%.
Sure I mean, what we've seen over the past.
Few years is that our revenue per customer, which we are really focusing the investment community on has increased by over $50 over the past two and a half years. So I think what we've seen is that once our customers buy from us they come back they come back over and over and over again to replenish their uniforms and.
You know a lot of that is just because the product is so amazing and it speaks for itself and once you try saying Theres no reason to buy anything else and so you know.
We don't have like a massive amount of retention marketing that even needs to happen that being said, we you know we do a reengagement and engage our community through new product drops we have product drops weekly here at fixed we're engaging across our social channels in real life and events and and through all the work that our that our brand team.
And our teams across the company are doing but really when you when you build a great product that people love they come back for it and that's what we've done here at <unk>.
Thank you and if I could just ask a follow up on that a O V has been a great contributor of growth as you've built out that lifestyle business. This year do you anticipate the growth momentum will continue at the same double digit piece of contribution into 2022 that you saw in 2021.
We're incredibly happy with our ability to drive <unk> over $100, However, <unk> I.
I really encourage you to look at net revenue per active customer because that shows us what our customers are spending over the course of an entire year not just in one transaction and so our ability to really grow. This key metric is a better reflection of how engaged our customers are and our ability to get them to spend more with us over time going back to O V. Though we've been executing.
On our strategies that drove it higher and we're going to continue to do so so the first of which is the continued adoption of our layering system as we've discussed so driving higher average unit retail through higher price points, but also increasing the units per transaction per customer as they really want to shop. The full book, we're adding more personalization and features to our e-commerce experience.
<unk>.
And we're driving customers to purchase more through smart bundling opportunities like kids and finally, we're going to plan to drive more sales at full price, which will help further increase a obi.
Thank you so much I'll pass it on.
Okay.
Thank you Ms routes.
Our next question comes from the line of Dana has suite with Telsey Advisory Group. Please go ahead.
Hi, guys nice to see the progress and congratulations Daniela.
You've done a lot of new product initiatives. This year in terms of the holiday gift shop. The kids how are those taking hold and driving either repeat purchasers of what new innovations should we look for this year to continue to drive a L. D. And lastly, how are you planning the discounts going forward what was typically the time.
Line of discounts in the cadence as you went through the year and reduced discounts in the fourth quarter do you see that occurring go forward. Thank you.
You.
Thanks Dana.
I mean, I think you know our number one job yard fixes to innovate is innovate on the product side.
What we do is recreate functional highly high quality products to outfit, our health care professionals from head to toe and so we did that in 2021 in spades right 100, new styles and I think our product innovation velocity I think it is unlike many other companies and we're continuing to build on that in 2022 and you saw that right. He thought it was.
Lifestyle, how we really build that out we're going to continue to do so building out these categories right within outerwear within our under scrubbed within our compression sock business. These are all businesses that you know.
<unk> will be incredibly large over time.
But don't forget I don't I wouldn't sleep on the scrubber business rate over 80% of our business is his core scraps so building.
Building out. These franchises is also a really important part of what we're doing with high waisted style.
Styles with our yoga waistband styles with our double double draw upwards. All of these different iterations of the styles that people know and love as a big part of what we're doing going forward.
Men's men's is it continuing to be a massive opportunity we are underpenetrated on that front and we are continuing to innovate on that front.
And then inclusivity right on the sizing we're going to continue to bring more.
This cuts different fit to really be able to serve a broader range of our amazing health care professionals.
The world and so we have a lot to do we are excited we wake up every morning, feeling like we're the lucky as people in the world that we are able to do this in and create the most amazing products for the most amazing people.
That's where we're going to do it as it relates to the discount Daniel Yeah, I'll take the discount question. So.
So.
A couple of items related to our discount in Q4, and how we're thinking about them going forward. So the first of which is more Q4 specific we really changed our black Friday cyber Monday strategy to have more dynamic pricing and give us better control over the inventory that we sold and that resulted in a lower discount and so we're probably not going to see that benefit into the next quarter.
However, we also drove lower discount usage in non promotional time, and we're expecting to continue that strategy and continue to drive that in 2022 and see those benefits.
Thank you.
Thank you Ms Telsey.
There are no additional questions waiting at this time, so I will pass the conference over to co CEO Trina sphere.
Thank you so before ending our call today, we would like to take some time to answer a few of the most up voted questions from our shareholders through the state platform.
We received quite a few questions around me and Heather selling shares. So we're going to start there first off no. One is more committed to this company that had early after having built the company for almost a decade and after not selling any shares in the IPO, we sold a small percentage of our shares and our September follow on Heather's sold about 13% of our her holdings and I sold.
5%.
Virtually every founder sell some shares after they're a company goes public. So this is very standard and we do remain two of the biggest holders of big stock with a tremendous amount of stake at stake, which is just as it should be and we.
We just wanted to say how committed we are to this business. We are so confident and excited about the future.
We look forward to getting on more calls in and showing that we will continue to deliver.
Next we got a question from John H around the stock price movement and he asked a really great question.
For a potential investors out there why choose big so yeah, we've seen that too.
And in the short run and I'm sure you've heard this the stock market is a voting machine, but in the long run, it's a weighing machine and the and the whole stock market I'm sure everyone knows is extremely volatile right now and it's really due to macro factors that have nothing to do with us and in our view that's creating these stock price movement that don't reflect at all.
All the fundamentals of our business.
So let's talk about why you should use fixed first in terms of our fundamentals.
It's extremely rare to have.
Find any company with our financial profile. This rare combination of both revenue growth and adjusted EBITDA and doing that all at the same time, coupled with our free cash flow is truly unique.
And.
One of the reasons, there's a few reasons why being able to create this unique financial profile.
We are in an industry that is recession resistant it is non discretionary.
Health care professionals must wear their uniforms to go to work every day. They need these products to go to work and do their jobs and we help them look good feel good and perform at their best Arvind visit as replenishment driven with high repeat purchase rates and almost 70% of our business is repeat customers at this point, we create the most innovative products.
Have a diehard community that is coming back over and over and over again for them every day.
Health care has a segmented as a job segment is expected to be the fastest growing job job segment over the next decade.
The market is massive it's 12 billion in the U S with $79 billion, we feel as though we're creating market share every single day BR.
Beyond those numbers, creating Tam every day, that's what we do at fixed we have huge growth opportunities in front of us across all parts of our business and our operational execution is best in class, we've delivered and will continue to deliver outstanding margins even in the most challenging of macro environment, we have an extraordinary team and our COO.
Clear vision, we wake up every day and get the job done and finally.
I think we all know the best companies are authentic purpose, driven and we have that in spades.
So with that thank you all so much we're really excited to share our results and I Hope you have a great rest of your day.
That concludes the big fourth quarter, 2020 , One earnings conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.
Okay.
Okay.
Okay.