Q4 2023 Figs Inc Earnings Call

February 28, 2024

Plans will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question. Please press star one on your telephone keypad.

I'd now like to turn the conference over to our host Jean Fontana. Please go ahead.

Thank you good afternoon, and thank you for joining today's call to discuss <unk> fourth quarter and full year 2023 results, which were released this afternoon and can be found in our earnings press release and in the sarcoma presentation posted to our Investor Relations website at IR Dot <unk> Dot com presenting on today's call are Trina sphere, our co founder and Chief Executive Officer.

Good afternoon. Thank you for attending today's.

And Daniela <unk>, our Chief Financial Officer as a reminder, our remarks on this call that do not concern past events are forward looking statements. These may include predictions expectations or estimates, including about future financial performance market opportunity or business plans forward looking statements involve risks and uncertainties and actual results could differ materially these and other risks.

<unk> fourth quarter and fiscal 2023 year earnings Conference call. My name is cole and I'll be the moderator for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question. Please press star one on your telephone keypad.

Are discussed in our SEC filings, including the 10-K, we filed today, which we encourage you to review do not place undue reliance on forward looking statements, which speak only as of today and looking undertake no obligation to update finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business definitions.

I would now like to turn the conference over to our host Jean Fontana. Please go ahead.

Thank you good afternoon, and thank you for joining today's call to discuss <unk>, Inc. Fourth quarter and full year 2023 results, which were released this afternoon and can be found in our earnings press release and in the sarcoma presentation posted to our Investor Relations website at IR Dot <unk> Dot com presenting on today's call are Trina <unk> co founder and Chief Executive Officer and.

Reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in the stockholder presentation, we issued today.

Yellow trends from our Chief Financial Officer as a reminder, our remarks on this call that do not concern past events are forward looking statements. These may include predictions expectations or estimates, including about future financial performance market opportunity or business plan forward looking statements involve risks and uncertainties and actual results could differ materially these and other risks are.

Now I would like to turn the call over to Trina sphere.

Thank you gene.

Looking back at 2023, we outperformed our expectations with net net revenue growth of 8% and adjusted EBITA margin of 15, 8%.

We reduced inventory by 33% and generated strong free cash flow of $85 million.

Discussed in our SEC filings, including the 10-K, we filed today, which we encourage you to review do not place undue reliance on forward looking statements, which speak only as of today and looking undertake no obligation to update.

Looking across the business, we grew our active customer base, 13% versus last year.

Additionally, we achieved 818% net revenue growth and non scribes, 42% growth in our international business and nearly 50% growth in our teams business.

We will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business definitions.

Reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in the stockholder presentation. We issued today now I would like to turn the call over to Trimas sphere.

We also opened our first permanent retail location, our community hub in Los Angeles with strong early reads in traffic and conversion.

Thank you gene.

Importantly, we continue to lay the groundwork to scale, our business with investments in infrastructure and technology.

Looking back at 2023, we outperformed our expectations with net net revenue growth of 8% and adjusted EBITDA margin of 15, 8%.

While we are proud of these accomplishments recent trends have become more challenging.

We reduced inventory by 33% and generated strong free cash flow of $85 million.

Which I will speak to in more detail shortly.

But I want to share right upfront my fervent position that we are on the right course.

Looking across the business, we grew our active customer base, 13% versus last year.

During 2023, we took measures to rightsize, our inventory levels, which are leading to some after effects.

Additionally, we achieved 818% net revenue growth and non scribes, 42% growth in our international business and nearly 50% growth in our teams business.

However, the work we have underway to create a more solid foundation from product to marketing to operations will set us up to succeed in the future.

We also opened our first permanent retail location, our community hub in Los Angeles with strong early reads in traffic and conversion.

We remain the distant leader in health care apparel and have the scale and balance sheet to opportunistically invest across numerous growth levers.

Importantly, we continued to lay the groundwork to scale, our business with investments in infrastructure and technology.

Now diving a bit deeper to provide context on our 2024 net revenue outlook.

With respect to the macro environment. We believe there are two factors that are impacting the health care apparel industry <unk>.

While we are proud of these accomplishments recent trends have become more challenging which I will speak to in more detail shortly.

First we continue to see inflation weigh on consumers, including our healthcare community, two thirds of whom make less than $100000 a year.

But I want to share right upfront my forbid position that we are on the right course.

During 2023, we took measures to rightsize, our inventory levels, which are leading to some after effects.

They have less spending power than they did two years ago and are being more intentional about how they spend every dollar.

However, the work we have underway to create a more solid foundation from product to marketing to operations will set us up to succeed in the future.

Second we believe that the sustained fatigue and stress amongst healthcare professionals post COVID-19 may be impacting behavior.

We remain the distant leader in health care apparel and have the scale and balance sheet to opportunistically invest across numerous growth levers.

The traumatic experience of Covid, followed by the sustained high demand for health care workers is taking its toll on our community and may be impacting their purchasing decision.

Now diving in a bit deeper to provide context on our 2024 net revenue outlook.

Our health care, it's human Roundtable discussion this past November shined, a light on just how much pressure they are under and we believe we may be seeing this reflected through lower engagement metrics.

With respect to the macro environment. We believe there are two factors that are impacting the health care apparel industry first.

We are in the trenches with our community on these challenges and are diligently working to help solve them through our often humans bill.

First we continue to see inflation weigh on consumers, including our health care community, two thirds of whom make less than $100000 a year.

Despite these external challenges we remain optimistic about the state of the health care workforce long term.

They have less spending power than they did two years ago and are being more intentional about how they spend every dollar.

Particularly given that health care and social assistant jobs are projected to be the fastest growing of any sector between 2022 and 2032.

Second we believe that the sustained fatigue and stress amongst healthcare professionals post COVID-19 may be impacting behavior.

And our estimated to create about 45% of all projected job gains over that period.

The traumatic experience of Covid, followed by the sustained high demand for health care workers is taking its toll on our community and may be impacting their purchasing decision.

This is according to the Bureau of Labor Statistics.

In addition, a recent survey by the University of Maryland, Baltimore showed that 38% of Gen Z plans to pursue a career in healthcare.

Outside of these macro factors, we've also taken a step back to assess our own performance.

We are in the trenches with our community on these challenges and are diligently working to help solve them through our often humans bill.

In 2023, one of our top priorities was to reduce inventory levels back to approximately 25 weeks of supply by year end.

Despite these external challenges we remain optimistic about the state of the health care workforce long term.

We were successful in meeting our goal with only a modest impact on our gross margin.

Particularly given that health care and social assistant jobs are projected to be the fastest growing of any sector between 2022 and 2032.

We did this in part by bringing back a number of products from prior launches.

For example through our iconic figure 10 campaign, we relaunched 10 of our communities favorite colors and 10 weeks.

And our estimated to create about 45% of all projected job gains over that period.

This is according to the Bureau of Labor Statistics.

At times, we also leveraged conversion driven marketing, including promotional messaging to move through our inventory.

In addition, a recent survey by the University of Maryland, Baltimore showed that 38% of Gen Z plans to pursue a career in healthcare.

We believe this may have contributed to the lower frequency inactive customer trends, we're now seeing.

Outside of these macro factors, we've also taken a step back to assess our own performance.

Looking back we think we got away from the cohesive brand building strategy that ties our product launches to powerful storytelling campaign.

In 2023, one of our top priorities was to reduce inventory levels back to approximately 25 weeks of supply by year end.

Our success has been based on brand excitement that ignites a word of mouth flywheel.

We were successful in meeting our goal with only a modest impact on our gross margin.

This flywheel is what makes figs fundamentally different.

And we're at our best when it's clicking.

We did this in part by bringing back a number of products from prior launches.

Okay.

In 2024, our focus will be leveling up and on innovation.

For example through our iconic figure 10 campaign, we've relaunched 10 of our communities favorite colors and 10 weeks.

And rebuilding our brand momentum through a number of initiatives.

As discussed last quarter, we are evolving our supply chain through best in class partners across continents to deliver the most advanced products to health care professional.

At times, we also leveraged conversion driven marketing, including promotional messaging to move through our inventory.

We believe this may have contributed to the lower frequency inactive customer trends, we're now seeing.

In addition to innovation and quality and new product, we are enhancing important details like our waistbands are trends zippers fabrication.

Looking back we think we got away from the cohesive brand building strategy that ties our product launches to powerful storytelling campaign.

We have also embarked on an initiative to improve fit consistency across our assortment.

Our success has been based on brand excitement that ignites a word of mouth flywheel.

Which we are excited to rollout over the next year, starting as early as Q2.

This flywheel is what makes <unk> fundamentally different.

As we continue to advance our technical capabilities, we also see opportunity to lean further into our layering system by becoming the category defining brand across scrubbed wear outerwear footwear under scrubbed compression socks bags and so much more for health care professional.

And we're at our best when it's clicking.

Okay.

In 2024, our focus will be leveling up and on innovation.

And rebuilding our brand momentum through a number of initiatives.

As discussed last quarter, we are evolving our supply chain through best in class partners across continents to deliver the most advanced products to health care professionals.

Non scruggs represented 23% of net revenue in the fourth quarter.

Afflicting strong performance in a number of these categories and we see meaningful runway ahead of us.

In addition to innovation and quality and new product, we are enhancing important details like our waistbands are trends zippers fabrication.

The recent launch of our on shift Sherpa bomber jacket was one of our biggest to date and is a great example of what we're able to bring to the market outside of core scrubbed to address the needs of health care professionals on shift and all.

We have also embarked on an initiative to improve fit consistency across our assortment.

Which we are excited to rollout over the next year, starting as early as Q2.

Lastly, as we take our product innovation to the next level, we are introducing extremes.

As we continue to advance our technical capabilities, we also see opportunity to lean further into our layering system <unk>.

Extremes exemplifies how fixed conserve even the most extraordinary needs of health care professionals.

By becoming the category defining brand across scrubbed wear outerwear footwear under scrubbed compression socks bags and so much more for health care professional.

This year, we plan to introduce a series of innovative launches featuring technical products designed to solve problems for some of the most specialized field within medicine.

Non scruggs represented 23% of net revenue in the fourth quarter.

Last month, we launched our first extremes collection supported by an exciting marketing campaign featuring Doctor look then at.

Reflecting strong performance in a number of these categories and we see meaningful runway ahead of us.

The recent launch of our on shift Sherpa bomber jacket was one of our biggest to date and is a great example of what we're able to bring to the market outside of core scribed to address the needs of health care professionals on shift and all.

The medical performance director for Hindustan, the medical team supporting Formula one.

Our large scale score storytelling campaigns will be designed to shine a spotlight not only on the extraordinary work that these health care professionals do everyday but also on just how extreme all health care professionals are.

Lastly, as we take our product innovation to the next level, we are introducing extremes.

We have a series of exciting partnerships within sports medicine, and other areas of healthcare as well, including search and rescue large animal vet and E&P.

Extremes exemplifies how fixed conserve even the most extraordinary needs of health care professionals.

This year, we plan to introduce a series of innovative launches featuring technical products designed to solve problems for some of the most specialized fields within medicine.

These big brand moments will be augmented.

With a series of evergreen and smaller product launch campaigns throughout the year.

As well as community events, and Activations that will enable us to engage healthcare professionals in person.

Last month, we launched our first extremes collection supported by an exciting marketing campaign featuring Doctor look then at the.

The success of our brand has not just been about great product innovation and powerful brand marketing.

The medical performance director for <unk>, the medical team supporting Formula one.

The seamless integration of both that generates excitement.

Leading health care professionals to share their fixed experience with one another.

We believe that our extremes initiative as an integral and rebuilding the powerful word of mouth dynamic that helped us to surpass a half of $1 billion in 2022, just 10 years after our inception.

We have a series of exciting partnerships within sports medicine, and other areas of healthcare as well, including search and rescue large animal vets and E&P.

To lead our integrated marketing strategy <unk> has joined <unk> as Chief marketing officer, bringing 15 years of experience. Most recently at Nike as Nike's head of brand marketing for New York City.

These big brand moments will be augmented with a series of evergreen and smaller product launch campaigns throughout the year as.

As well as community events, and Activations that will enable us to engage healthcare professionals in person.

In addition to Nike her background includes Ralph Lauren and under armor.

The success of our brand has not just been about great product innovation and powerful brand marketing.

We look forward to having her lead our brand and digital marketing efforts as we work to get back the secret sauce that has driven our success for over the last decade.

The seamless integration of both that generates excitement.

Leading health care professionals to share their fixed experience with one another.

While we're excited about our strategic initiatives to drive brand momentum.

We believe that our extremes initiative as an integral and rebuilding the powerful word of mouth dynamic that helped us to surpass a half of $1 billion in 2022, just 10 years after our inception.

We know that building, new and existing customer engagement and in an environment of the headwinds facing our health care professionals will take time, which is reflected in our guidance.

The health care industry is evolving and we're taking steps to evolve with it while also leveraging our multiple growth levers.

Starting with international net revenue grew 42% in 2023 versus the same prior year period.

This strong performance was driven by growth in our more established markets stemming from localization efforts and targeting initiatives as well as traction we're gaining in the 10 markets. We entered in 2023.

In addition to Nike her background includes Ralph Lauren and under armor.

We look forward to having her lead our brand and digital marketing efforts as we work to get back the secret sauce that has driven our success for over the last decade.

In Mexico, and the Philippines remain our top new markets and as you may recall this came with minimal marketing investment we plan to add new markets in 2024, as we continue to build our brand globally.

While we are excited about our strategic initiatives to drive brand momentum.

We know that building, new and existing customer engagement and in an environment of the headwinds facing our health care professionals will take time, which is reflected in our guidance.

We are also excited to share that for the first time in our company's history fix is partnering with medical team behind sport, starting with Everton Football club of the English Premier League, which is the most viewed sports league in the world.

The health care industry is evolving and we're taking steps to evolve with it while also leveraging our multiple growth levers.

Starting with international net revenue grew 42% in 2023 versus the same prior year period.

Our relationship with <unk> medical team demonstrates our commitment to celebrating health care professionals, who have dedicated their lives to serving others, including athletes.

Finally in support of our growing international business, we plan to open a distribution center in Canada in 2025.

Mexico, and the Philippines remain our top new markets and as you may recall this came with minimal marketing investment.

Which we believe will meaningfully improve our margin and enhance the customer experience with shorter shipping time.

We plan to add new markets in 2024, as we continue to build our brand globally.

Okay.

Our teams business grew net revenue by 66% as compared to the fourth quarter last year.

We are also excited to share that for the first time in our company's history fix is partnering with medical teams behind sport.

We successfully launched our teams App open access test, enabling businesses of any size to purchase scrubbed through our platform.

Starting with Everton football club of the English Premier League, which is the most viewed sports league in the world.

Which contributed to strong growth in the quarter.

We believe that our ability to serve businesses of any size through this platform meaningfully increases our addressable market.

Our relationship with <unk> medical team demonstrates our commitment to celebrating health care professionals, who have dedicated their lives to serving others, including athletes.

In addition to serving these customers with premium products, we also offer personalization, including embroidery.

Finally in support of our growing international business, we plan to open a distribution center in Canada in 2025.

During the holiday season, we created a customized experience for our largest teams customer a travel nurse agency to offer a gifting experience to their employees.

Which we believe will meaningfully improve our margin and enhance the customer experience with shorter shipping time.

With health care evolving to become more specialized personalized and localized.

Our teams business grew net revenue by 66% as compared to the fourth quarter last year.

Localized we see tremendous opportunity to grow this business through expanded assortment and exceptional online digital experience.

We successfully launched our teams App open access tests, enabling businesses of any size to purchase scrubbed through our platform.

The U S. Concierge medicine market is expected to double to $13 4 billion by 2030.

Which contributed to strong growth in the quarter.

We believe that our ability to serve businesses of any size through this platform meaningfully increases our addressable market.

We see this reflected in our record membership growth amongst concierge clinics and in the increased M&A activity within the primary care space.

In addition to serving these customers with premium products, we also offer personalization, including embroidery.

These trends validate our efforts to expand our teams business.

During the holiday season, we created a customized experience for our largest teams customer a travel nurse agency to offer a gifting experience to their employees.

Turning to retail.

We are pleased with the early results of our first community hubs since our opening in early November.

We believe that consumers still want that in person shopping experience.

With health care evolving to become more specialized personalized and localized.

As evidenced by the fact that in 2023 E. Commerce comprised only 15, 6% of total retail sales in the United States.

Localized we see tremendous opportunity to grow this business through expanded assortment and exceptional online digital experience.

Our community hub is attracting new customers to the brand while also enabling us to serve existing customers with an additional shopping channel.

The U S. Concierge medicine market is expected to double to $13 4 billion by 2030.

We see this reflected in our record membership growth amongst concierge clinics and in the increased M&A activity within the primary care space.

Since opening in century city, we have received requests from numerous health care professionals to open a store in their market.

We are targeting a summer opening for our second community hub in Philadelphia.

These trends validate our efforts to expand our teams business.

The 4100 square foot location will enable us to deliver events and programming that align with our community pillars and advocacy efforts.

Turning to retail.

We are pleased with the early results of our first community hubs since our opening in early November.

The large store format will also enable us to better showcase our broader layering system, presenting an opportunity to drive higher <unk>.

We believe that consumers still want that in person shopping experience.

As evidenced by the fact that in 2023 E. Commerce comprised only 15, 6% of total retail sales in the United States.

To exceed half a billion dollars is a digital only brand is something we're very proud of and we believe that we can deliver an exceptional shopping experience across multiple channels.

Our community hub is attracting new customers to the brand while also enabling us to serve existing customers with an additional shopping channel.

Our community hub rollout strategy.

We will remain test learn and apply and win.

Since opening in century city, we've received requests from numerous health care professionals to open a store in their market.

And finally, we are laying the foundation to scale.

We are undergoing the transition of our fulfillment operation to a best in class Tech enabled facility. We will launch later this year that will enable us to scale and provide a better customer experience.

We are targeting a summer opening for our second community hub in Philadelphia.

The 4100 square foot location will enable us to deliver events and programming that align with our community pillars and advocacy efforts.

In conclusion, we recognize that industry dynamics are creating some near term pressure, but we have been and will continue to take steps to offset these headwinds and position ourselves for long term growth.

The large store format will also enable us to better showcase our broader layering system, presenting an opportunity to drive higher <unk>.

We are unwavering in our belief that building a brand the right way takes time, but it is the most authentic and valuable way to do it.

To exceed half a billion dollars is a digital only brand is something we're very proud of and we believe that we can deliver an exceptional shopping experience across multiple channels.

We are positioning our company to capitalize on the opportunities in front of us while taking important steps to.

Our community hub rollout strategy.

We will remain test learn and apply and win.

To make us a stronger more resilient company in the future.

And finally, we are laying the foundation to scale.

We remain bullish on our long term opportunity for several reasons.

We are the pinnacle brand in the health care apparel space.

You just hit 1 million followers on Instagram showing how we have the most loved brand in the industry, we have ample market share opportunity across geographies channels and profession.

In conclusion, we do recognize that industry dynamics are creating some near term pressure, but we have been and will continue to take steps to offset these headwinds and position ourselves for long term growth.

We have a long term health care industry tailwind.

We have a strong balance sheet with $250 million in cash and short term investments we have no debt and we continue to be a cash flow generative business.

We are unwavering in our belief that building a brand the right way takes time, but as the most authentic and valuable way to do it.

I remain confident that the strategies, we have underway will lead to healthy long term sustainable growth.

We are positioning our company to capitalize on the opportunities in front of us while taking important steps.

To make us a stronger more resilient company in the future.

Now I want to take a moment to acknowledge the announcement related to Daniela turn shines decision to lease Biggs to assume the CFO role at another company.

We remain bullish on our long term opportunity for several reasons.

We are the pinnacle brand in the health care apparel space.

I am so grateful for her contributions over the last five and a half years as she helped us build the brand.

We've just hit 1 million followers on Instagram showing how we have the most loved brand in the industry, we have ample market share opportunity across geographies channels and profession.

Serves those who serve others.

Daniela has had the backs of our health care community and she has been an incredible leader and thought partner to me and the whole <unk> family.

We have a long term health care industry tailwind.

We have a strong balance sheet with $250 million in cash and short term investments we have no debt and we continue to be a cash flow generative business.

She has also built out.

The best of the best Finance team, leading us to over half a billion dollars in net revenue.

I remain confident that the strategies, we have underway will lead to healthy long term sustainable growth.

While also being profitable.

We are fortunate to have Daniela with us through mid April to ensure a smooth transition.

Now I want to take a moment to acknowledge the announcement related to Daniela turn shines decision to leave <unk> to assume the CFO role at another company.

Kevin <unk>, our corporate controller has been part of the fixed family for the last three years and we have every confidence in his ability to serve as our interim CFO.

I am so grateful for her contributions over the last five and half years as she helped us build the brand.

With that I will turn the call over to Daniela to provide details on our fourth quarter and full year results.

Serve those who serve others.

Daniela has had the backs of our health care community and she has been an incredible leader and thought partner to me and the whole <unk> family.

And our outlook for 2024.

Thank you Trina <unk> has been an incredible experience and I'm. So grateful to have been part of this growth journey.

She has also built out.

I am so proud of what we've accomplished over the last several years and I truly believe that there is so much opportunity ahead our.

The best of the best Finance team, leading us to over half a billion dollars in net revenue while also being profitable.

Our finance team is comprised of some of the best and the brightest and I have every confidence that we will have a seamless transition under Kevin's leadership.

We are fortunate to have Daniela with us through mid April to ensure a smooth transition.

I will now turn my discussion to a review of our fourth quarter financial results, followed by our outlook for the first quarter and full year 2024.

Kevin <unk>, our corporate controller has been part of the fixed family for the last three years and we have every confidence in his ability to serve as our interim CFO.

We were pleased to have exceeded our adjusted EBITDA margin expectations for 2023, as we consider our 2024 outlook. We are mindful of the current macro challenges and remain focused on leaning into our brand DNA to drive improved and more consistent performance in the future.

With that I will turn the call over to Daniela to provide details on our fourth fourth quarter and full year results and our outlook for 2024.

Thank you Trina <unk> has been an incredible experience and I'm. So grateful to have been part of this growth journey.

Importantly, we have a strong balance sheet to make sound investments in our business to drive long term sustainable growth.

As noted in our press release, our fourth quarter reflects a $4 7 million net revenue reclassification from selling expense to a contra revenue account. This was associated with an accounting change for duty subsidies that we have been paying on behalf of our Canadian customers.

I am so proud of what we've accomplished over the last several years.

I truly believe that there is so much opportunity ahead.

Our finance team is comprised of some of the best and the brightest and I have every confidence that we will have a seamless transition under Kevin's leadership.

Now turning to our results.

I will now turn my discussion to a review of our fourth quarter financial results, followed by our outlook for the first quarter and full year 2024.

Beginning with the top line for the fourth quarter net revenues were $144 9 million flat to Q4 last year.

The aforementioned duty reclassification negatively impacted net revenues by $4 $7 million.

This reclassification was not reflected in our Q4 net revenue guidance of low single digit growth.

Active customers for the 12 months period increased 13% compared to a record quarter of new customer growth in last year's Q4.

<unk> sustainable growth.

As a reminder, we anticipated that the strong performance of our sample sale will pull forward some demand into the third quarter.

<unk> increased four 5% to $117 in the fourth quarter due to higher average unit retail or AUR driven by product mix trailing.

Trailing 12 months net trailing.

Now turning to our results.

Trailing 12 month net revenues per active customer decreased 5% to $210.

Beginning with the top line for the fourth quarter net revenues were $144 9 million flat to Q4 last year.

Gross margin for Q4 was 67, 5% compared to 68, 2% in Q4 2022.

The aforementioned duty reclassification negatively impacted net revenues by $4 $7 million. This.

The net revenues impact of the reclassification negatively impacted gross margin by 100 basis points.

This reclassification was not reflected in our Q4 net revenue guidance of low single digit growth.

Margin benefited from lower airfreight utilization improved ocean freight costs, and a more favorable promotional mix, partially offset by product mix.

Active customers for the 12 month period increased 13% compared to a record quarter of new customer growth in last year's Q4.

Selling expense for Q4 was $28 1 million, representing 19, 4% of net revenues compared to 26% in Q4 2022 the.

As a reminder, we anticipated that the strong performance of our sample sale will pull forward some demand into the third quarter.

<unk> increased four 5% to $117 in the fourth quarter due to higher average unit retail or AUR driven by product mix trailing.

The 660 basis point decrease was primarily due to lower warehouse storage and associated labor cost with emphasis on that as well as improved domestic shipping fees. As a reminder, selling expense no longer includes the $4 7 million in duty subsidies you've reclassified.

Trailing 12 months net trailing.

Trailing 12 month net revenues per active customer decreased 5% to $210.

Gross margin for Q4 was 67, 5% compared to 68, 2% in Q4 2022.

Marketing expense for Q4 was $20 1 million, representing 13, 9% of net revenues compared to 14, 8% in Q4 2022.

The net revenues impact of the reclassification negatively impacted gross margin by 100 basis points.

The decline in marketing expense as a percentage of sales is largely due to lower brand marketing, including out of home. We continue to drive marketing efficiencies and spend on both new customer acquisition and retention maintaining first order profitability.

Margin benefited from lower airfreight utilization improved ocean freight cost and a more favorable promotional mix, partially offset by product mix.

Selling expense for Q4 was $28 1 million, representing 19, 4% of net revenues compared to 26% in Q4 2022 the.

G&A expense for Q4 was $35 4 million, representing 24, 5% of net revenues compared to 25, 2% in Q4 2020 to the.

660 basis point decrease was primarily due to lower warehouse storage and associated labor cost with emphasis on that as well as improved domestic shipping fees.

The decrease in G&A as a percentage of sales was largely due to lower legal fees and insurance costs, partially offset by investments in people.

As a reminder, selling expense no longer includes the $4 7 million in duty subsidies be reclassified.

Our fourth quarter net income was 10 million or diluted EPS of <unk> as compared to net income of $3 4 million or <unk> <unk> and diluted EPS in last year's fourth quarter.

Marketing expense for Q4 was $20 1 million, representing 13, 9% of net revenues compared to 14, 8% in Q4 2022.

Finally, our adjusted EBITDA for Q4 remained strong at $26 6 million for an adjusted EBITDA margin of 18, 4% compared to 13, 6% in Q4 2022.

Briefly touching on the full year net.

Net revenues were $545 6 million, an increase of seven 9% year over year.

G&A expense for Q4 was $35 4 million, representing 24, 5% of net revenues compared to 25, 2% in Q4 2020 to.

Gross margin was 69, 1% a decrease of 100 basis points year over year due to product mix shift and to a lesser extent higher duties and a higher mix of promotional sales, partially offset by lower airfreight utilization in ocean freight rates.

The decrease in G&A as a percentage of sales was largely due to lower legal fees and insurance costs, partially offset by investments in people.

Our fourth quarter net income was $10 million or diluted EPS of <unk> as compared to net income of $3 4 million or <unk> <unk> and diluted EPS in last year's fourth quarter.

As a percentage of net revenues operating expenses slightly increased to 62, 8% from 62, 6% in the prior year, primarily due to higher general and administrative expenses.

Finally, our adjusted EBITDA for Q4 remained strong at $26 6 million for an adjusted EBITDA margin of 18, 4% compared to 13, 6% in Q4 2022.

Set by lower marketing and selling expense.

Adjusted EBITDA margin was 15, 8% as compared to 17, 2% in the same period last year.

Touching on our balance sheet, we finished the quarter with cash and cash equivalents and short term investments of $246 7 million.

Briefly touching on the full year.

Net revenues were $545 6 million, an increase of seven 9% year over year.

Inventory decreased 33% to $119 million at the end of the fourth quarter, reaching our target of approximately 25 weeks of supply for yearend.

Overall, we are comfortable with the balance of core and limited edition inventory levels and believe we will be back to normalized weeks of supply in 2024.

As a percentage of net revenues operating expenses slightly increased to 62, 8% from 62, 6% in the prior year, primarily due to higher general and administrative expenses.

Capital expenditures for the year totaled $16 3 million of which $12 2 million is associated with the fulfillment enhancement project.

Before turning to our guidance I want to reiterate some of the comments Trina discussed in regards to factors impacting our business.

Set by lower marketing and selling expense.

Adjusted EBITDA margin was 15, 8% as compared to 17, 2% in the same period last year.

First we believe macro challenges such as inflation will continue to pressure our health care professionals in the near term.

Touching on our balance sheet, we finished the quarter with cash and cash equivalents and short term investments of $246 7 million.

We believe this could be exacerbated by the rising fatigue and stress amongst some workers in the industry looking.

Looking at our own business during 2023, as we focused on getting down inventory to more normalized levels. We believe we have we may have shifted a bit too far away from our approach of tying product launches to brand storytelling campaigns.

Inventory decreased 33% to $119 million at the end of the fourth quarter, reaching our target of approximately 25 weeks of supply for year end.

Overall, we are comfortable with the balance of core and limited edition inventory levels and believe we will be back to normalized weeks of supply in 2024.

We believe that the strategic actions, we are taking in product and marketing will ultimately drive improved performance, though we recognize that this will take time, which is reflected in our outlook.

Capital expenditures for the year totaled $16 3 million of which $12 2 million is associated with the fulfillment enhancement project.

Looking at profitability, we expect selling expense pressure associated with our fulfillment enhancement project and deleverage on G&A to pressure adjusted EBITDA margin. In 2024, we are confident in the steps we are taking to drive improved performance and therefore, we plan to continue to leverage our strong balance sheet and cash flow dynamics to make strategic investments.

Before turning to our guidance I want to reiterate some of the comments Trina discussed in regards to factors impacting our business.

First we believe macro challenges such as inflation will continue to pressure healthcare professionals in the near term.

We believe this could be exacerbated by the rising fatigue and stress amongst some workers in the industry looking.

<unk> that will position us to scale, our business for future growth.

Looking at our own business during 2023, as we focus on getting down inventory to more normalized levels. We believe we have we may have shifted a bit too far away from our approach of tying product launches to brand storytelling campaigns.

Now moving to guidance for the full year 2024.

As a result of the aforementioned factors, we expect net revenues to be flat to down mid single digits as compared to the full year 2023, reflecting pressure in frequency trends in active customer growth.

Looking at cadence, we expect the third quarter to be the most challenged of the year as we anniversary the strong volume generated by last year's sample sale as we continued to work down inventory levels.

Turning to gross margin for the year, we expect to be roughly in line with our 2023 rate as we elevate product with new fabrications and trends and continue to see product mix shift.

We expect this to be offset by a duty cost benefit later in 2024.

<unk> that will position us to scale, our business for future growth.

Turning to selling expense transitory costs associated with our fulfillment enhancement project are estimated to be approximately $14 million or about 250 basis points in 2024.

Now moving to guidance for the full year 2024.

In terms of ongoing fulfillment related costs, we expect that the costs associated with the new facility will offset the savings be gained on storage count costs to house excess inventory last year.

Looking at cadence, we expect the third quarter to be the most challenged of the year as we anniversary the strong volume generated by last year's sample sale as we continue to work down inventory levels.

Therefore, 2023 represents a good baseline for what we expect selling expense to be as a percentage of sales. Following the completion of our transition to our new fulfillment center longer term, we expect to gain leverage as we scale.

Turning to gross margin for the year, we expect to be roughly in line with our 2023 rate as we elevate product with new fabrications and trends and continue to see product mix shift.

In terms of cadence, we expect the majority of these transitory costs will be spread within the first three quarters with the second quarter carrying the highest expense.

We expect this to be offset by a duty cost benefit later in 2024.

Turning to selling expense transitory costs associated with our fulfillment enhancement project are estimated to be approximately $14 million or about 250 basis points in 2024.

The bulk of the project involves moving our fulfillment to our new facility in 2024, while simultaneously continuing operations in our current facility to ensure a smooth transition the.

The projected $14 million in transitory costs are largely associated with temporarily running the two concurrently.

In terms of ongoing fulfillment related costs, we expect that the costs associated with the new facility will offset the savings be gained on storage cow costs to house excess inventory last year.

The new facility will operate with state of the art robotics, and new technology that we expect to increase reliability flexibility and efficiency as well as improve order delivery times. In addition, we expect this new facility to have the capacity to support $1 billion in net revenues as we continue to scale our business.

In terms of cadence, we expect the majority of these transitory costs will be spread within the first three quarters with the second quarter carrying the highest expense.

G&A is expected to deleverage based on our net revenue outlook. We are taking a close look at our cost structure to identify savings opportunities, but we'll continue to invest in the areas of our business that drive growth.

The bulk of the project involves moving our fulfillment to our new facility in 2024, while simultaneously continuing operations in our current facility to ensure a smooth transition the.

We expect DNA to increase commensurate with the increase in capital expenditures.

As a result of these factors adjusted EBITDA margin for full year 2024 is expected to be between 11% and 12%.

The projected $14 million in transitory costs are largely associated with temporarily running the two concurrently.

This reflects approximately 250 basis points of cost headwind from the transitory portion of our fulfillment project in.

In terms of our Q1 2024 outlook, we expect net revenues to decline in the low single digits, reflecting pressure in active customer growth and continuation of slower frequency trends.

We expect gross margin to be down versus Q1 last year due to investments in innovation and product mix shift.

Looking at operating expenses for selling expense, we expect the transitory fulfillment project costs to impact Q1 by approximately 370 basis points.

We expect DNA to increase commensurate with the increase in capital expenditures.

Offsetting this will be the benefit of the cost savings from nonrecurring storage fees from last year as well as the duty reclassification net net we expect selling expense to deleverage by approximately 70 basis points, which also takes into account higher ongoing fulfillment costs.

As a result of these factors adjusted EBITDA margin for full year 2024 is expected to be between 11 and 12%.

This reflects approximately 250 basis points of cost headwind from the transitory portion of our fulfillment project in.

As a result, we expect first quarter adjusted EBITDA margin to be approximately seven 5%.

In terms of our Q1 2024 outlook, we expect net revenues to decline in the low single digits, reflecting pressure in active customer growth and continuation of slower frequency trends.

Capital expenditures for 2024 are expected to be between 18, and $19 million, including 13% to $14 million in fulfillment enhancement related costs.

We expect gross margin to be down versus Q1 last year due to investments in innovation and product mix shift.

In conclusion, we believe we have identified areas of opportunity to reignite demand in our business, but also recognize that this will take time and we are still facing macro headwinds. We remain excited about the long term prospects for our business. We are the distant leader in health care apparel with distinct competitive advantages in product innovation and brand love.

Looking at operating expenses for selling expense, we expect the transitory fulfillment project costs to impact Q1 by approximately 370 basis points.

Coupled with the scale and balance sheet to invest in future growth with that I will turn it over to the operator to kick off our Q&A session operator.

As a result, we expect first quarter adjusted EBITDA margin to be approximately seven 5%.

Thank you if you'd like to queue for a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove your question you can press star two.

Capital expenditures for 2024 are expected to be between 18, and $19 million, including 13% to $14 million in fulfillment enhancement related costs.

The queue for a question. Please press star one we will pause briefly as questions are registered.

Our first question is from Brian Nagel with Oppenheimer. Your line is now open.

Hi, good afternoon.

Thanks for taking my questions.

Sure.

Just the first question I have just make sure we're clear on this.

Coupled with the scale and balance sheet to invest in future growth with that I will turn it over to the operator to kick off our Q&A session operator.

EBITDA guidance EBITDA margin guidance for $2000.

<unk> 11 to 12, we showed.

250 basis points.

Thank you if you'd like to queue for a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove your question you can press star two.

Reflects the trend to recourse.

Is that all of it.

Normal.

In 2024.

Other factors that slowed.

Temporarily suppressed EBITDA margins next year for this year.

The queue for a question. Please press star one we'll pause here briefly as questions are registered.

Thanks for the question, Brian So our 2020 for EBITDA outlook of 11% to 12% once you adjust for the 250 basis points of transitory selling expenses gets.

Our first question is from Brian Nagel with Oppenheimer. Your line is now open.

It gets you to 13 five to 14, 5% I think the other thing that is.

Hi, good afternoon.

Thanks for taking my questions.

Sure.

Just the first question I have just make sure we're clear on this so.

Impacting the outlook is.

The revenue guidance. So we are expecting to see some short term deleverage and G&A expenses I think looking into the future.

EBITDA guidance EBITDA margin guidance for 2000.

<unk> 11 to 12, we show the.

250 basis points.

We believe that a high teens adjusted EBITDA margin is still a really good target for our business.

It reflects the trend to re cost is that.

Is that all of it.

Normal.

In 2020 forward or were there other.

And I think we showed in 2023 at almost 16% that we are.

Other factors that.

Really suppresses EBITDA margins next year for this year.

We're pretty close to that target as well.

So yeah Super proud of the performance we delivered.

Thanks for the question, Brian So our 2020 for EBITDA outlook of 11% to 12% once you adjust for the 250 basis points of transitory selling expenses.

Got it Okay and then my second question just with respect to I guess, the revenue guided to what Youre seeing.

Schumer.

So.

Yes.

<unk> 13, five to 14, 5% I think the other thing that is.

The more challenging.

Trainer you articulated as well.

Is it something you're seeing or have you seen more here.

Impacting the outlook is the revenue guide and so we are expecting to see some short term deleverage and G&A expenses I think looking into the future.

Whereas we started the progression.

2024 again, the second question I have with that is.

We believe that a high teens adjusted EBITDA margin is still a really good target for our business.

Recognizing that you are the leader out there in a very very fragmented space, but are you seeing any indications of all of that for one reason or another your target consumers.

And I think we showed in 2023 at almost 16% that we are.

Rigs to something else.

We're pretty close to that target as well.

Or is it simply just weaker activity on the part of your core consumers.

And so yes, we're super proud of the performance we delivered.

Well I'll take the first part in terms of what we're seeing in 2024, So I think like we've said in the past.

Got it Okay and then my second question just with respect to I guess, the revenue guided to what Youre seeing.

Year over year, we have a different schedule for <unk>.

Consumer.

So.

Yes.

Events for launches until it's very hard for us to compare apples to apples.

<unk> more challenging.

Thank you.

Trainer yard articulated as well is that is.

However, the trends that we're speaking to in our outlook in terms of.

Is it something you're seeing or have you seen that more.

<unk>.

Continued pressure on frequency rates, but also pressure on active customer growth we are.

Yes.

Started to progress into 2024.

And then the second question I have with that is.

We are utilizing the information that we have year to date to inform our outlook.

Recognizing that you are the leader out there in a very very fragmented space, but are you seeing any indications of all that for one reason or another your target consumers.

And so that's how we're encompassing that information and I'll pass it over to Trina to talk about your second question.

Away from <unk> to something else.

Yeah. Thanks, Brian So I think what we're seeing with <unk>.

Or is it simply just weaker activity on the part of your core consumers.

The consumer more broadly is that the economic landscape has felt uncertain for the majority of our customer base since 2021.

Well I'll take the first part in terms of what we're seeing in 2024, So I think like we've said in the past.

<unk> co.

COVID-19.

Year over year, we have a different schedule for <unk>.

Was.

It's really slowed since then so inflation has really been impacting our base two thirds of our customers make less than 100 Grand a year and they have less spending power than they did two years ago and are being more intentional about how they spend every dollar.

Four launches until it's very hard for us to compare apples to apples.

However, the trends that we're speaking to in our outlook in terms of continued.

Continued pressure on frequency rates, but also pressure on active customer growth we are.

The second impact that we've seen.

We are utilizing the information that we have year to date to inform our outlook.

March it's more related to the health care community.

So that's how we're encompassing that information and I'll pass it over to Trina to talk about your second question.

This sustained high demand that is being.

<unk> really put on this community and taking a toll on them.

Yes, thanks, Brian So I think what we're seeing with the.

There is a supply and demand imbalance.

The consumer more broadly is that the economic landscape has felt uncertain for the majority of our customer base since 2021.

Tapping shortage, where health care professionals are being asked to do much more than they have had to do in the past the long term health care as an incredibly strong segment and it is going to continue to grow but that's what we're seeing and to your question around are they trading down.

<unk> co.

COVID-19.

Was.

Really slowed since then so inflation has really been impacting our base two thirds of our customers make less than 100 Grand a year and they have less spending power than they did two years ago and are being more intentional about how they spend every dollar.

We really are not seeing that.

Very large player in the less premium.

Part of the health care apparel industry by the name of Spi.

The second impact that we've seen.

<unk> filed for bankruptcy.

He has more it's more related to the healthcare community.

We really this isn't.

This sustained high demand that is being.

Really specific we don't we think this is being felt by the overall industry and I do think that.

<unk> really put on this community and taking a toll on them.

There is a supply and demand imbalance.

Staying true to who we are staying true to our authenticity our product innovation, our brand storytelling and advocacy is what will help us win long term.

Shopping shortage, where health care professionals are being asked to do much more than they have had to do in the past the long term health care as an incredibly strong segment and it's going to continue to grow but that's what we're seeing and to your question around are they trading down.

That's very helpful before I handover, Daniela and best of luck in your next endeavor, it's been a pleasure working with you.

So much Brian.

We really are not seeing that.

Our next question is from Edward <unk> with Piper Sandler Your line is now open.

A very large player in the less premium.

Part of the health care apparel industry by the name of Spi.

Hey, good afternoon, guys. Thanks for taking the questions I guess first I know you listed a number of different.

<unk> filed for bankruptcy.

We really this isn't.

Use cases for some of your more specialized medical where but kind of curious to link back to the comments on pockets of incremental demand that you see is that these kind of.

Really specific we don't we think this is being felt by the overall industry and I do think that.

Staying true to who we are staying true to our authenticity our product innovation, our brand storytelling and advocacy is what will help us win long term.

More niche applications is it the layering system I guess kind of what gives you comfort in that medium term view based on what you think the product offering today and then second would just love to kind of think through the promotional calendar now that you've got an inventory more aligned.

That's very helpful. So before I hand over to Daniela.

Best of luck in your next endeavor and a pleasure working with you.

Is the expectation that promotion should be broadly lower than they were in 23. Thank you.

So much Brian.

Sure. Thanks, Ed.

Our next question is from Edward <unk> with Piper Sandler Your line is now open.

So I think from a product perspective.

In 2023.

We had had we had a number of launches, but we're also bringing back.

Hey, good afternoon, guys. Thanks for taking the questions I guess first I know you listed a number of different.

A number of different styles and colors from the past and so if you look at the cadence of the year net net there was less newness there was less innovation in terms of where we are now and we're very proud of the ability of what we did in terms of bringing down our inventory from a peak of 109.

Use cases for some of your more specialized medical was kind of curious to link back to the comments on pockets of incremental demand that you see is that these kind of more niche applications is it the layering system I guess kind of what gives you comfort in that medium term view based on what you think the product offering today, and then second which.

<unk> million dollars to $119 million in Q4, and so where are we now on products.

Just love to kind of think through the promotional calendar now that you've got an inventory more aligned.

There is expectation that promotion should be broadly lower than they were in 23. Thank you.

We have a very healthy week of some weeks of supply we feel really good about our ability to introduce innovation across new fabrications products features and functionality in both scrubbed and in non scribes and this includes our outerwear business footwear under scrubbed lab coat.

Sure. Thanks, Ed.

So I think from a product perspective in.

In 2023.

We had had we had a number of launches, but we're also bringing back.

A number of different styles and colors from the past.

Woods compression socs.

Really stepping up and leveling off on all of these categories all with the needs of the health care professional in mind.

And so if you look at the cadence of the year net net there was less newness there was less innovation in terms of where we are now and we're very proud of the ability of what we did in terms of bringing down our inventory from a peak of 190 million to $119 million.

A good example of this and I mentioned it is our are on shifts Sherpa bomber jacket. It was one of our best outerwear launches since 2022 are scrubbed like our scrub legging launch.

In Q4, and so where are we now on products.

It was a huge success. So we're energized by what we've seen in Q1, but we know that building the level of engagement that we had will take time.

We have a very healthy week of weeks of supply we feel really good about our ability to introduce innovation across new fabrications products features and functionality in both scrubbed and in non scribes and this includes our outerwear business footwear under scribes Labcorp.

But we are going to continue to bring health care professionals new innovation.

That not only drives them to dry too.

Really engage with any particular launch, but also drives the core and that supply wheel that has made us. So successful in terms of the promotional calendar Daniela do you want to take that one.

<unk> compression socs.

Really stepping up and leveling off on all of these categories all with the needs of the health care professional in mind.

Yes.

So in terms of promotional cadence for 2024, I think it's important to note that in 2023, despite having an elevated inventory balance we maintain discipline around our promotional event and I think thats really apparent in the really strong gross margin rate that we delivered for the full year and so look.

A good example of this and I mentioned it is our are on shift Sherpa bomber jacket. It was one of our best outerwear launches since 2022 are scrubbed like our scrub legging launch.

It was a huge success. So we're energized by what we've seen in Q1, but we know that building the level of engagement that we had will take time.

Into next year, our guidance assumes that we continue to maintain that same discipline around our promotional events.

But we are going to continue to bring health care professionals new innovation.

We don't do like for like events every quarter and so we think that's really important to ensure that our customer isn't waiting for the next event I think we're going to continue to be really focused on protecting our brand, but we're also really mindful of the fact that we're in a challenging macro environment, where as Trina discussed the consumer is under pressure so.

That not only drives them to dry too.

Really engage with any particular launch, but also drives the core and that's the flywheel that has made us. So successful in terms of the promotional calendar Daniela do you want to take that one.

Yes.

So in terms of promotional cadence for 2024 I.

I think we're going to balance all of those things and expect to have a relatively similar promotional cadence in 2024.

I think it's important to note that in 2023, despite having an elevated inventory balance we maintain discipline around our promotional event and I think thats really apparent in the really strong gross margin rate that we delivered for the full year and so looking into next year. Our guidance assumes that we continue to maintain that seem disk.

Our next question is from Brooke Roach.

Goldman Sachs.

Line is now open.

Good afternoon, and thank you for taking the question I was hoping we could talk a bit more about your marketing plans for the year. It looks like you saw some efficiencies in the fourth quarter, but revenues are under pressure in the customer's engaging a little bit differently can you talk about what's changing in your advertising and marketing expense in 2020.

The plan around our promotional events.

On customer acquisition costs, and the absolute percent of plan.

Marketing cost as a percent of sales this year.

I think we're going to balance all of those things and expect to have a relatively similar promotional cadence in 2024.

Sure. Thanks Brooks.

First off I want to reiterate how excited we are about to Nate you didnt joining us as our new CMO I think.

We're currently making a shift to.

Our next question is from Brooke Roach.

Really tie our product, our merchandising and our marketing together with very intentional and cohesive brand campaigns.

Goldman Sachs. Your line is now open.

And.

Engaging our community at the top of the funnel. It is why our community loves figs. It is what has driven our success in having.

Having that lens is going to be super important over the long run and so that is.

More on customer acquisition cost and the absolute percent of plan.

How we think about it and I think.

Marketing costs as a percent of sales this year.

The strategy around launching new products engaging our community.

Sure. Thanks Brooks.

Waiting up until midnight seeing what we launched are engaging with that product and then replenishing. The core none of that is changing that continues to be how.

First off I want to reiterate how excited we are about to Nate you didnt joining us as our new CMO I think.

Currently, making a shift to <unk>.

How we think about the merchandising behind that marketing in terms of the spend in tact. We've been as you know incredibly efficient it's been around 15 marketing as a percent of net revenue has been around 15% and that's been stable quarter after quarter after quarter, we look to remain and be disciplined but are <unk>.

Really tie our product, our merchandising and our marketing together with very intentional and cohesive.

Brand campaigns.

Engaging our community at the top of the funnel. It is why our community loves figs. It is what has driven our success in having.

So were evaluating <unk>.

Certain parts of the business and opportunities, where we can potentially push that more as we see across channels across international across teams ways in which we can draw.

Uh huh.

Having that lens is going to be super important over the long run and so that is.

How we think about it and I think.

The strategy around launching new products engaging our community.

Driving that long term LTV and long term return.

Waiting up until midnight seeing what we launched are engaging with that product and then replenishing. The core none of that is changing that continues to be.

That investment and that is where we're focused.

Great. Thanks, and then just one quick follow up for Daniela.

Hey, Greg thoughts around what level of U S versus international growth, you're contemplating in the flat to down 5% revenue outlook for the year. Thank you.

Not.

Breaking out the specific buckets I think similar to what we've seen in the past international is in earlier stages and we are expecting.

We're also evaluating.

Certain parts of the business and opportunities, where we can potentially push that more as we see across channels across international across teams ways in which we can draw.

The growth trajectory to be stronger than the U S.

But I think we're really focused on.

As Trina mentioned, driving intentional product innovation, and combining that with cohesive storytelling and brand campaigns across our portfolio and that's going to ultimately drive both the U S and the international business over time.

Drive that long term LTV and long term return.

That investment and that is where we're focused.

Great. Thanks, and then just one quick follow up for Daniela.

Our next question is from Dana Telsey with Telsey Advisory Group. Your line is now open.

Hey, Greg thoughts around what level of U S versus international growth, you're contemplating in the flat to down 5% revenue outlook for the year. Thank you.

Hi, Hi, Trina and best of luck Daniela.

As you mentioned about product launches.

Yeah.

Not.

To better enhance to focus more on storyteller storytelling campaign part of it too as we go through 2024 with the new people also that you've brought in brought.

Breaking out the specific buckets I think similar to what we've seen in the past international is in earlier stages and we are expecting.

The growth trajectory to be stronger than the U S. But.

Brought in Trina, how do you see the product telling story, what should we be looking for on the product cadence to drive excitement given the consumer more consumer challenges now how do you think about the product offering both in scrubs and a non scrubber.

But I think we're really focused on.

<unk>.

Thank you Dana.

It's really exciting.

Our next question is from Dana Telsey with Telsey Advisory Group. Your line is now open.

Exciting to be able to bring different stories around.

What health care professionals are doing in extreme environments and so our big campaign for the year is extremes.

Hi, Hi, Trina and best of luck Daniela.

As you mentioned about product launches.

And we feel as though.

To better enhance to focus more on storyteller storytelling campaign part of it too as we go through 2024 with the new people also that you've brought.

Showcasing.

Even someone like Dr. Luke Bennett who's.

<unk>, a the medical director behind hinder which is basically leading the medical teams for Formula One race car driving which is super cool and so telling that story tying that to the racing suite that we launched tying that to the entire collection that brought in different elements.

Brought in Trina, how do you see the product telling story, what should we be looking for on the product cadence to drive excitement given the consumer where consumer challenges now how do you think about the product offering both in scrubber and non scrubber.

Of.

<unk>.

<unk> dot profession, bringing different elements and different innovation across.

Thank you Dana.

It's really exciting to be able to bring different stories around.

Across scrubbed, but also across outerwear, we've had a number of launches this quarter within outerwear that ties to.

Healthcare professionals are doing in extreme environments, and so our big campaign for the year is extremes.

To the extremes campaign and so this is a really exciting direction for us in launching pinnacle products that not just drive.

We feel as though.

<unk>.

Statement for them and of themselves, but also drive our community to the core and so.

Even someone like Dr. Luke Bennett Who's who.

He is a the medical director behind hint star, which is basically leading the medical teams for Formula One race car driving which is super cool and so telling that story tying that to the racing suite that we launched tying that to the entire collection that brought in different elements.

That's where we're going to continue to do Theres a lot of opportunity.

Within fabrication, we are right now developing two new fabrications within scrubber.

We believe we're going to change the game and then outside of scrub wear outerwear is a massive category health care professionals are still wearing jackets that are made to go hiking and rock climbing.

Of that.

Profession, bringing different elements and different innovation across.

Across scrubbed.

So there's a lot of runway.

I would say out be in outerwear as it's kind of a second behind scribes and then across the layering system for sure but.

<unk>. These two pieces and really three is product is merchandising and marketing tying these three pieces together in a really intentional way.

Is the direction and is where we're headed.

Our next question is from John Kernan with TD Cohen.

Your line is now open.

Hey, Thanks for taking my question.

Just wanted to.

Take a look at selling expenses and the outlook for selling beyond fiscal 'twenty four Daniela.

Topline growth returns what do you think a normalized.

Selling margin is for the business.

And what type of topline growth will you need to.

To see that rate decline as a percent of sales.

Thanks for the question John So as we discussed just to reiterate we have about $14 million in nonrecurring selling costs associated with our fulfillment enhancement project through.

Through the third quarter of 2024.

This compares to kind of the original $16 million to $18 million that we cited previously that is transitory. So looking beyond this transition year those will roll off.

There are also going to be higher costs associated with the facility, but these are investments to drive better efficiency flexibility speed and accuracy really to enable us to better serve our customers.

And really setting the foundation for us to expand our distribution network in the future.

Looking at ongoing costs as we said in the script, we do believe that.

23 is a pretty good baseline level to use going forward.

These higher costs do offset the savings that we would have gained by no longer using the excess storage facilities to house inventory.

Over time, there is a lot of opportunity to leverage this line item as we scale and also as we expand our distribution network and are serving our international customers.

<unk>.

Closer to that lower shipping fees and alike.

And so I think as we mentioned we do plan to open a candidate EDC in early 2025, so that's going to be a really important driver of revenue and profitability on the horizon.

That's helpful. Thanks, and then when we look at the adjusted EBITA margin you have you been.

Mid to high teens.

Singly.

With gross margin hovering around 69, 70% what is the long term path.

How does it look back to that higher levels of adjusted EBITDA margin had been in the past and how should we think about the underlying drivers of that.

So yeah, I think well it's dependent on our sales growth. We do believe that we can return to high teens EBITDA margin fairly quickly.

Super proud to have delivered almost 16% adjusted EBITDA margin in the past year.

I think looking at the P&L buckets, you spoke about gross margin, we're continuing to maintain a really healthy rate there. While also driving more innovation investments in quality and consistency and I think into the future. We have the opportunity to really optimize and our supplier base and continue to drive better costing.

As we scale, our core business and then continuing to invest some of those gains back into growth.

Selling expense, we just chatted through kind of the puts and takes there.

I think as Chinas discussed, we're going to continue to remain efficient and marketing spend but also have the ability to flex up or down depending on what we're seeing in the environment.

And over time right as we returned to growth we believe we can leverage G&A.

But we're not going to make short term sacrifices, we're going to continue to invest in growth in the near term.

Thank you.

I think 2023 shows that our core business.

High margin, it's replenishment driven it's highly profitable I think there is some short term impacts that are creating some pressure in 2024, but fundamentals of our business remain really strong.

Our next question is from Rick Patel with Raymond James Your line is now open.

This is Josh <unk> filling in for Rick here.

I was hoping you could dig a bit deeper on its active customer growth in <unk>.

Any thoughts on how many how much lot growth came from the U S versus international markets.

And how should we think about new customer potential in 2024.

So in 2012.

We don't provide more breakout on active customer mix between the U S and international I think similar to the growth rates that we're seeing between the two.

International is a stronger driver of growth, but I think in both cases, we are underpenetrated and we have a lot of opportunity to continue to add more customers into the fixed family.

Looking into 2024, obviously been speaking about we are comping.

A really strong period of gross customer adds in 2023 as a reminder, over the last several years, we've actually doubled our active customer base and so we're comping some really big numbers here.

How should we think about new customer potential in 2024 compared to what you achieved in 2023.

And I think over time.

As China is speaking to we have an opportunity to really.

We don't provide more breakout on active customer mix between the U S and international I think similar to the growth rates that we're seeing between the two <unk>.

Mary this intentional product innovation with our brand storytelling I think the top of funnel marketing that we're doing.

Is going to be a large customer acquisition driver, but these strategies will take time.

International is a stronger driver of growth, but I think in both cases, we are underpenetrated and we have a lot of opportunity to continue to add more customers into the fixed family.

And as a result, we are speaking to some pressure in active customer growth looking into 2024.

Looking into 2024 as we've been speaking about we are Comping, a really strong period of gross customer adds in 2023.

Our next question is from Matt Koranda with Roth and Kim Your line is now open.

Hi, everyone.

As a reminder, over the last several years, we've actually doubled our active customer base and so we're comping some really big numbers here.

Just wanted to clarify what you said in terms of the quarter that should be sort of the lowest growth quarter in 'twenty four.

And I think over time.

Maybe just if you could talk about the phasing of growth across the year.

As China was speaking to we have an opportunity to really.

Given the overall sort of low single digit negative outlook for revenue at the midpoint.

Mary this intentional product innovation with our brand storytelling I think the top of funnel marketing that we're doing is going to be a large customer acquisition driver, but these strategies will take time.

And then just factors that swing you towards the bottom end of the guide and top and is it more product launches and more successful promotions and an improved macro thats on the high end of the guide like one of those.

As a result, we are speaking to some pressure in active customer growth looking into 2024.

It takes there.

Yeah.

So looking at the cadence of growth throughout the year, we are expecting Q3 to be the most challenged because we are comping, a very successful sample sale and in the third quarter of last year that we spoke to.

Our next question is from Matt Koranda with Roth and Kim Your line is now open.

Hi, everyone.

Just wanted to clarify what you said in terms of the quarter that should be sort of the lowest growth quarter in 'twenty four.

We did have just a larger inventory position to drive that event speaker.

Speaking to kind of.

Maybe just if you could talk about the phasing of growth across the year.

Outperformance to our outlook I will pass it over to Trina.

Given the overall sort of low single digit negative outlook for revenue at the midpoint and then just factors that swing you towards the bottom end of the guide and top and is it more product launches is it more successful promotions.

Okay in terms of the outperformance of our outlook I think there's a number of things that we'll be able to drive that rate.

We saw.

Success with our scrub lagging this is a completely new category that didn't exist in healthcare and so being able to bring that to this community and have it be successful there are a number of different innovations that we're bringing for throughout the year and there is a lot there is ability to outperform our expectations.

Is it an improved macro thats on the high end of the guide like what are the.

It takes there.

And.

And also the core there is a number of things that we're doing from an evergreen marketing perspective to not only bring excitement around launches, but bringing excitement around.

We did have just a larger inventory position to drive that event.

Speaking to kind of.

The replenishment aspect of needing to replenish your catarina top vendors are more pan and how often are you coming back throughout the year to do that.

Outperformance to our outlook I'll pass it over to Trina.

Okay in terms of the outperformance of our outlook I think there's a number of things that we'll be able to drive that rate.

Okay helpful. And then just on the fulfillment project just curious what changed on the numbers and it's not a huge difference, but I think it used to be about $18 million in terms of total protocols in those 14 just.

Success with our scrub lagging this is a completely new category that didn't exist in healthcare and so being able to bring that to this community and have it be successful there.

What came out of that.

Maybe help us understand a little bit about the change there.

There are a number of different innovations that we're bringing forth throughout the year and there is a lot there is ability to outperform our expectations.

Yeah, as we've gone throughout the year and gotten closer to this transition taking place. It's really just updates to our project plan and timing of.

And.

And also the core or there is a number of things that we're doing from an evergreen marketing perspective to not only bring excitement around launches, but bringing excitement around the.

The duration that we will need to be running both facilities in tandem has helped to bring the cost down so looking too.

The replenishment aspect of needing to replenish your catarina top and here's a more pan and how often youre coming back throughout the year to do that.

Optimize that and glad to see that that is transitory expenses have come down with our most recent expectations.

Okay. Thanks, I'll turn it over.

Okay helpful. And then just on the fulfillment project just curious what changed on the numbers, it's not a huge difference, but I think it used to be about $80 million in terms of total protocols in those 14, just what came out of that.

Our next question is from Angus Kelleher with Barclays. Your line is now open.

Hi, This is <unk> on for Adrian Thanks for taking my question and Daniela wishing you well on your next venture.

Help us understand a little bit about the.

As you look ahead to 2024 for selling expense how do you think about the timing of the benefit from recapturing warehousing costs.

Angela.

Yeah, as we've gone throughout the year and gotten closer to this transition taking place. It's really just updates to our project plan and timing of.

And how many quarters do you expect to get that benefit along with the degree to which it will.

The duration that we will need to be running both facilities in tandem has helped to bring the cost down so looking too.

Offset the fulfillment enhancement project beyond <unk> and.

And as a follow up I'm curious about your new store given its now been open for a few months, so any new learnings or early wins you could share there. Thank you.

Optimize that and glad to see that that is transitory expenses have come down with our most recent expectations.

Okay. Thanks, I'll turn it over.

So as it relates to our outlook for selling expense.

Our next question is from Angus Kelleher with Barclays. Your line is now open.

We did discuss that we are expecting to see transitory costs as it relates to the transition those will be.

Hi, This is <unk> on for Adrian Thanks for taking my question and Daniela wishing you well on your next venture.

Largest and.

The second quarter, but will take place in Q1 through Q3.

As you look ahead to 2024 for selling expense how do you think about the timing of the benefit from recapturing warehousing costs and how many quarters do you expect to get that benefit along with the degree to which it will.

And as we look at some of the transitory costs that we had previously to house excess inventory that we pulled forward. We are expecting that the ongoing costs of our new facility will offset the gains that we're getting from those costs looking into 2024. So.

Offset the fulfillment enhancement project beyond <unk> and.

And as a follow up curious about your new store given its now been open for a few months, so any new learnings or early wins you could share there. Thank you.

Looking past those transitory expenses and you think that 2023 represents a pretty good baseline for where we expect selling expense to be in the future.

Now I'll turn it over to Trina to talk about our store.

So as it relates to our outlook for selling expense.

Yes, as it relates to our community hub in century city, we've seen really early success.

We did discuss that we are expecting to see transitory costs as it relates to the transition those will be.

And it really been fees with the traffic there are a number of days, where we've had lines outside all down all the way to the grocery store or we have headlines for our fitting room and I think what we realize theres been a number of learnings.

The largest in the.

The second quarter, but will take place in Q1 through Q3.

And as we look at.

Some of the transitory costs that we had previously to house excess inventory that we pulled forward we are expecting that the ongoing costs of our new facility will offset the gains that we're getting from those costs looking into 2024. So.

The stores about 1000 square feet, we're really excited to open phili. This summer it is a bigger format and so we're excited to have that.

That location in that format to see what that does but.

Looking past those transitory expenses, we think that 2023 represents a pretty good baseline for where we expect selling expense to be in the future.

Some of the some of the exciting dynamics over 40% of our customers are new to <unk> just showing.

How we can continue to build the brand with people that may not know about <unk> and so having that retail presence, having that community hub element, where we're having events and we're showing up in doing different.

Now I'll turn it over to Trina to talk about our store.

Yes, as it relates to our community hub in century city, we've seen really early success.

Really engaging our community in person is so important and we really think that's going to unlock a lot of what we're doing digital digitally.

So.

I think I mentioned on the call a 15, 6% of consumers shop online so having stores having community hubs as part of our strategy is really important and it's only going to further.

The stores about 1000 square feet, we're really excited to open phili. This summer it is a bigger format and so we're excited to have that.

That location in that format to see what that does but.

Further the brand love and community engagement that fixed has so very excited about what's to come.

Some of the some of the exciting dynamics over 40% of our customers are new to <unk> just showing.

How we can continue to build the brand with people that may not know about <unk> and.

Our last question is from Bob <unk> with Guggenheim Partners. Your line is now open.

And so having that retail presence, having that community hub element, where we're having events and we're showing up and doing different.

Hi.

Two questions quick questions. The first one is.

Really engaging our community in person is so important and we really think that's going to unlock a lot of what we're doing digital digitally.

On the retail store just following up from the prior question.

Is New York City.

Area, where youre contemplating a store from a branding perspective.

So.

I think I mentioned on the call a 15, 6% of consumers shop online so having stores having community hubs as part of our strategy is really important I mean, it's only going to further.

And the second question is as you think about sort of a slower.

Is there a skew.

<unk> opportunity that you are considering just trying to understand sort of how youre approaching.

Further the brand love and community engagement that fix has so very excited about what's to come.

This slower environment. Thanks.

Thanks, Bob.

Yes, we're very excited about New York City. It has been one of our.

Our last question is from Bob <unk> with Guggenheim Partners. Your line is now open.

Key key markets one of our largest markets.

Amazing health care facilities Amazing hospitals in New York, and so we will get there we're aligning it all up but very excited about New York City.

Hi.

Two questions quick questions. The first one is.

On the retail store just following up from the prior question.

In terms of SKU rationalization I think we are one of the one of the things that makes <unk>, So special and such a great business model is having a very high volume with relatively low SKU count.

Is New York City.

Area, where youre contemplating a store from a branding perspective.

And the second question is as you think about sort of a slower environment is there a SKU rationalization opportunity that you are considering just trying to understand sort of how youre approaching.

And so having.

This level of SKU productivity is something unique to being a uniform company, it's something unique to being a replenishment driven company and so continuing to drive more people to the same products as a strategy that we will continue to follow but feel very good about where we are from an inventory position.

This slower environment. Thanks.

Thanks, Bob.

Yes, we're very excited about New York City. It has been one of our.

Key markets one of our largest markets.

And where we are from a SKU count position.

Amazing health care facilities Amazing hospitals in New York, and so we will get there we're aligning it all up but very excited about New York City.

Thank you.

In terms of SKU rationalization I think we are one of the.

Thank you all for joining our Q4 and 2023 full year conference call, we'll see you soon.

One of the things that makes <unk>, so special and such a great business model is having a very high volume with relatively low SKU count.

That concludes today's call. Thank you all for your information you may now disconnect your lines.

So having.

<unk> and where we are from a SKU count position.

Thank you.

Thank you all for joining our Q4 and 2023 full year conference call. We will see you soon.

That concludes today's call. Thank you all for your information you may now disconnect your lines.

Q4 2023 Figs Inc Earnings Call

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