Q4 2024 Figs Inc Earnings Call

Some portion of the call with an opportunity for questions and answers at the end if you like to ask a question. Please press star one on your telephone keypad.

Speaker Change: I would now like to pass the conference over to our host Tom Shaw SVP of Investor Relations. Tom You May now proceed.

Speaker Change: Good afternoon, and thank you for joining us to discuss <unk> fourth quarter and full year 2024 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at IR Dot <unk> Dot com.

Good afternoon and welcome to Alignment Healthcare's 4th Quarter 2024 Earnings Conference Call-In Webcast.

Treated Sphere: Presenting on today's call are treated sphere, our co founder and Chief Executive Officer, Sara <unk>, our Chief Financial Officer.

All participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions.

Treated Sphere: As a reminder remarks on this call that do not concern past events are forward looking statements.

To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please note that this event is being recorded.

Treated Sphere: These may include predictions expectations or estimates, including about future financial performance market opportunity or business plans.

Treated Sphere: Forward looking statements involve risks and uncertainties and actual results could differ materially.

Speaker Change: Leading today's call are John Kao, Founder and CEO, and Thomas Freeman, Chief Financial Officer.

These and other risks are discussed in our SEC filings, including in the 10-K, we filed today.

Speaker Change: Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements, as defined by the Private Securities Litigation Reform Act.

Treated Sphere: Do not place undue reliance on forward looking statements, which speak only as of today and which we undertake no obligation to update.

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

Speaker Change: These forward-looking statements are subject to risk and uncertainties and reflect our current expectations based on beliefs, assumptions, and information currently available to us.

Treated Sphere: Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation, we issued today.

Speaker Change: descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements.

With that I'd now like to turn the call over to Trina.

Speaker Change: are discussed in more detail in our filings with the SEC, including the risk factors section of our annual report on Form 10-K for the fiscal year ended December 31st, 2024.

Trina: Thanks, Tom Good afternoon, everyone and thank you for joining us today.

Trina: Before we get into our results I'd like to take a minute to talk about the wildfires we experienced in January.

Trina: Los Angeles is our home. So this crisis impacted us on a particularly deep and personal level like.

Speaker Change: Although, we believe our expectations are reasonable and undertake no obligation to revise any statements to reflect changes that occur after this call. In addition,

Trina: So there are people within the community who lost their homes and are under incredible stress as they try to put their lives back together.

Speaker Change: Please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most current

Trina: This is also a reminder of how extraordinary our OSM humans are for most of US when crisis hit we go into the self preservation mode.

Trina: The opposite is true for the health care community.

Trina: We're a health care professional and the fire stop he spent 12 16 or even 24 hour shifts caring for everyone else, even while you're world was an utter turmoil.

Speaker Change: Comparable gap measures and reconciliation of historical non-gap financial measures can be found in a press release that is posted on the company's website and in our form 10-K for the fiscal year ended December 31st, 2024.

Trina: Sticking to our routes we did everything we could to support our communities through this crisis. In addition to other relief efforts. We contributed two we immediately set up a dedicated E mail alias where health care workers affected by the fires can reach out for assistant whether they needed scribes PPE, Neil childcare support or financial aid.

Speaker Change: I would now like to hand the call over to your speaker today, John Cahill. Please go ahead.

John Cahill: Hello, and thank you for joining us on our fourth quarter earnings conference call.

John Cahill: For the fourth quarter 2024, our health plan membership of 189,100 concluded a milestone year where we grew membership approximately 59 percent.

Trina: As part of our effort we responded to over 500 messages from health care professional donated over 9200 bags and delivered over 2500 meals.

Trina: No one sacrifices more of themselves in health care workers and this is why the work we're doing at pegs to celebrate empower and serve them is so important.

John Cahill: Our final result is more than 25,000 members above the high end of our initial guidance range and reflects an additional 21% growth relative to initial expectations.

Trina: As we reflect on the past year, we are proud of the important strides that were made as we continue to define what it means to serve the health care community.

John Cahill: As a result of our continued membership outperformance, total revenue of $701 million in the quarter grew approximately 51% year-over-year and 61% excluding ACO reach.

Trina: Measure this quite simply across three measures.

Trina: One <unk>.

Trina: How we bring great innovative products to address customer needs to how we develop deep authentic connections and three how we find new ways to expand our reach and impact.

John Cahill: In the fourth quarter, each of our key margin ratios improved year over year, even as our membership growth accelerated beyond expectations.

Trina: On the product side, we elevated our core scrub of our business delivering pinnacle offerings like our team USA collection, and our extreme line as well as differentiated silhouettes such as the widely is about scrub pants and straight and flare scrub leggings, we continued to expand the brand's opportunity beyond the core building out product solutions across a range of exciting categories.

John Cahill: Adjusted gross profit of $88 million, produced a consolidated MBR of 87.5%.

John Cahill: A 200 basis point improvement year over year and 50 basis point improvement excluding ACO reach.

John Cahill: Combined with substantial scale economies, we delivered adjusted EBITDA positive 1 million in the quarter and 400 basis points of margin expansion year over year.

Trina: Under scribes outerwear, even loungewear in Q4, and we leveraged product partnerships to extend our opportunity even further including unique development work with new balance and Echo our digital stuff that's called partner.

John Cahill: For the full year, total revenue of $2.7 billion grew 48% year-over-year and 59% excluding ACO reach.

Trina: We built authentic connections as we continue to elevate serving supporting health care professionals. This work was highlighted by our work to put health care professionals in the spotlight through our Olympics campaign, which was our largest brand campaign ever we.

John Cahill: A just as gross profit of $303 million resulted in an MBR of 88.8%.

Trina: We made investments to support better customer experience through our transition to a scalable high Tech fulfillment center and most important to who we are we supported our community and unique powerful ways, including our partnership to open the fixed operating theatre in ICU in Kenya, as well as the ongoing advocacy are often on our OSM humans Bell on Capitol Hill.

John Cahill: Lastly, we delivered positive adjusted EBITDA of 1 million which reflects 200 basis points of margin expansion year-over-year and marks our first year of adjusted EBITDA profitability as a public company.

John Cahill: Our exceptional results in 2024 highlight our differentiated ability to navigate a dynamic MA environment and demonstrate that plans can win by providing more care, not less.

Trina: To magnify. These efforts, we focused on expanding how and where we reach customers.

Trina: We think globally, we entered 10 new countries in 2024, while continuing to scale. The 20 plus international market. We continue to test the pinnacle retail experience through the opening of our second community hub in Philadelphia, and we evolved our <unk> platform to open to open access to more customer offer a full range of products and offer new solutions like our gifting.

John Cahill: Our success starts with approaching Medicare Advantage as a care management business, not just an actuarial underwriting business.

John Cahill: To execute our model, we employ more than 400 clinical staff who represent approximately 25% of our full-time employees and roughly 4% of medical expenses for at-risk members.

Trina: Platform.

Trina: Narrowing our focus to Q4, we are energized to end the year on a positive note revenues grew 5% year over year outpacing our implied range for the quarter with positive signs that our strategies are taking hold. This includes the ongoing upswing. We are seeing in repeat frequency supported by impactful product and color launches and a higher level of non promote.

John Cahill: These home and virtual-based resources leverage actionable insights from AVA to create greater control over medical quality and costs.

Trina: <unk> sale.

Trina: Looking at some of the standout for the period scrub wherewith positive for the third straight quarter, while non scrubber snapback to strong growth. After some of the pressure points, we outlined on our Q3 call.

Trina: Our international business was a standout growing 45% for the quarter to represent 16% of our net revenues and all time high for the brand.

Trina: Strong teams momentum continued delivering over 20% growth for the year and driving some of our excitement ahead of this year's initiatives.

Trina: On the margin side gross margins came in at the high end of our outlook. Despite the impact from mix, while marketing and G&A expenses showed leverage selling expenses deleveraged significantly for the period given the duty re class impact last year.

Trina: Then let center inefficiency.

Trina: Supported by our top line, our overall adjusted EBITDA margins came in above our expectations for the period.

Trina: We also ended the year at an incredibly strong financial position supported by positive operating cash flow for the year of approximately $81 million $45 million of share repurchases and our equity investment in <unk>. We finished the year with just over $245 million and net cash and investments on the balance sheet.

Trina: Despite clear progress in the quarter, we acknowledged not all went to plan during the year.

Trina: You saw inconsistency in our performance throughout the year with AB pressure more challenging customer acquisition and a range of pressures and Destructions impacting health care professionals.

Trina: We also experienced gross margin pressure from the changing product mixes within our business and absorbed the impact of strategic SG&A investments in marketing and fulfillment.

Trina: Nonetheless, we ultimately reached record revenue in 2024 and have growing conviction that the industry and our company will continue to normalize following the recent COVID-19 overhang on demand.

Trina: As we weighed all of these factors, we exited the year with a clear view on how our priorities would evolve in 2025.

Trina: This is guided by two simple principles to drive the long term health and growth of the brand.

Trina: We need to take near term actions to prioritize and Rebased, our efforts and second we need to move with more conviction and speed to invest in the opportunities at hand.

Trina: The near term action includes three calibration so our original plan starting with our promotional positioning.

Trina: We have seen improvements in our inventory positioning over the past six quarters at the same time, our product introductions are resonating well.

Trina: While we are still focused on optimizing our inventory we are in a position to become increasingly selective in our promotional cadence to be clear. This move is planned to have a negative impact on our topline performance. This year, but it is absolutely the right decision to align with our focus on long term brand health.

Trina: <unk>.

Trina: We are further calibrating FET.

Trina: Our work standardizing fit continues and we have found opportunities to further refine our efforts this year.

Trina: Consider the entire range of our product portfolio, we now expect to fully execute and market our fifth store in the back half of 2025.

Trina: While longer journey than we initially planned I'm, even more excited with how this additional work and direction will play out as we look to consistently delight, our full range of existing and future customers.

Trina: Finally, we are pausing our planned work to open at Canadian <unk>.

Trina: This will reduce unneeded complexity. This year, so that our team can focus on driving efficiency from our new domestic network at the same time, we expect to offset some of the planned savings of the Canadian D C with additional initiatives across our supply chain and we still see the opportunities to evolve our global supply chain as we move into 2026 and beyond.

Trina: In tandem with these actions, we are moving with greater urgency to invest across our core strategies.

Trina: Starting with our efforts to continue to exceed customer expectations through relevant innovation complementing our work to standardize that we're excited to advance our fabric story. This year as we have detailed our products has largely been based on our proprietary <unk> fabric. This is what we're known for and has been the standard for our industry at the same time customer feedback.

Trina: So the opportunity to drive greater functionality across a range of activities enroll. This month, we were excited to launch a brand new fabrication called formats designed for greater comfort and lower impact environments with an exceptional handfield enhanced stretch and a clean modern design aesthetics.

Trina: We plan to methodically expand this platform throughout the year and expect the line to further differentiate our brand in the market. We believe there are additional opportunities to evolve and elevate our fabric stories and look to test additional solutions as we move throughout the year.

Operator: 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. I would now like to pass the conference over to our host, Tom Shaw, SVP of Investor Relations. Tom, you may now proceed.

Trina: Beyond fit and fabric category expansion remains a focus as we address head to toe solution, both on and off shift we have meaningful opportunities ahead to build out some of our less developed category outerwear under scrubbed socks, but where each and focus this year and each of unlocking new growth opportunities for the brand.

Tom Shaw: Good afternoon, and thank you for joining us to discuss FIGS' Q4 and full year 2024 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our investor relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer, and Sarah Oughtred, our Chief Financial Officer. As a reminder, 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 are discussed in our SEC filings, including in the 10K we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today, and which we undertake no obligation to update.

Starting with our efforts to continue to exceed customer expectations through relevant innovation complementing our work to standardize fit we're excited to advance our fabric story. This year as we have detailed our products has largely been based on our proprietary <unk> fabric. This is what we're known for and has been the standard for our industry at the same time customer feedback has shown.

Trina: It is important to reiterate these efforts are supported by our ongoing focus on optimizing our inventory and color strategies. Our intentional actions in recent quarters has provided a better understanding of where we need to lean in further versus where we need to continue to demonstrate discipline and we will continue to balance each as we move through 2025.

The opportunity to drive greater functionality across a range of activities enroll. This month, we were excited to launch a brand new fabrication called formats designed for greater comfort and lower impact environments with an exceptional handfield enhanced stretch and a clean modern design aesthetic.

Trina: As we strive to deepen our connections with health care professionals, we're really excited with how we are evolving our marketing approach this year.

Trina: After what we would call them re positioning throughout 2024, we're going back to our roots of beds to focus on showing the everyday moment, whether big it inspiring our small and intimate.

We plan to methodically expand this platform throughout the year and expect the line to further differentiate our brand in the market. We believe there are additional opportunities to evolve and elevate our fabric stories and look to test additional solutions as we move throughout the year.

Trina: The job of the health care professionals, not bound by a clock or a location. So our year long exploration of where do you where <unk> is designed to celebrate all the moments that matter to health care professionals. We believe these authentic moments will coincide well with our innovation agenda and help reach and inspire a broad range of health care professionals, especially as we think with the global <unk>.

Speaker Change: Beyond fit and fabric category expansion remains a focus as we address head to toe solutions, both on and off shift we have meaningful opportunities ahead to build out some of our less developed category outerwear under scrubbed socks footwear, each and focus this year and each unlocking new growth opportunities for the brand.

Tom Shaw: Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation we issued today. With that, I'd now like to turn the call over to Trina.

Trina: <unk>.

Trina: Customization and personalization of two other areas that we believe will drive engagement and relevance across our community.

Speaker Change: It is important to reiterate these efforts are supported by our ongoing focus on optimizing our inventory and color strategies. Our intentional actions in recent quarters has provided a better understanding of where we need to lean in further versus where we need to continue to demonstrate discipline and we will continue to balance each as we move through 2025.

Trina: On the customization side, we have seen the power of this added level of engagement.

Trina: We have steadily added options, we still have limitations on how our customers can customize product across color bond placement and character count. These are all areas. We plan to advance this year, along with better placement of these options in the bi flow. Additionally, we're looking at a range of functions. This year that can further broadened both what can already be customized and what we have yet to.

Trina Spear: Thanks, Tom. Good afternoon, everyone, and thank you for joining us today. Before we get into our results, I'd like to take a minute to talk about the wildfires we experienced in January. Los Angeles is our home, so this crisis impacted us on a particularly deep and personal level. Like so many in LA, there are people within the FIGS community who lost their homes and are under incredible stress as they try to put their lives back together. This is also a reminder of how extraordinary our awesome humans are. For most of us, when crisis hits, we go into self-preservation mode. The opposite is true for the healthcare community. If you were a healthcare professional when the fire struck, you spent 12, 16, or even 24-hour shifts caring for everyone else, even while your world was in utter turmoil.

Speaker Change: As we strive to deepen our connections with health care professionals, we're really excited with how we are evolving our marketing approach this year.

Speaker Change: What we would call it more aspirational positioning throughout 2024, we're going back to our roots a bit to focus on showing the everyday moments, whether big and inspiring our small and intimate we know the job of the health care professionals not bound by a clock or a location. So our year long exploration of where do you where <unk> is designed to celebrate all the moments that matter to health care professionals.

Trina: Tackle.

Trina: On the personalization side, we have opportunities to build more powerful customer journeys.

Trina: Being in the DTC business that is built on data we have a unique understanding of how our community who they are where they work what products they like how and when they like to shop and what the replenishment cycle is.

Speaker Change: We believe these authentic moments will coincide well with our innovation agenda and reach and.

Trina: Ultimately, we have the ability to stay one step ahead, so that we can drive increasingly engaging experience for our community both on and offline.

Speaker Change: Inspire a broad range of health care professionals, especially as we think with a global mindset.

Trina Spear: Sticking to our roots, we did everything we could to support our community through this crisis. In addition to other relief efforts we contributed to, we immediately set up a dedicated email alias where our healthcare workers affected by the fires could reach out for assistance, whether they needed scrubs, PPE, meals, childcare support, or financial aid. As part of our effort, we responded to over 1,500 messages from healthcare professionals, donated over 9,200 FIGS, and delivered over 2,500 meals. No one sacrifices more of themselves than healthcare workers. This is why the work we're doing at FIGS to celebrate, empower, and serve them is so important. As we reflect on the past year, we are proud of the important strides that were made as we continue to define what it means to serve the healthcare community. We measure this quite simply across 3 measures.

Trina: Combining all of these elements we are hyper focused on building off our lessons last year and you should see us better align our storytelling, our product innovation and the timing of our messaging when it matters most to health care professionals.

Speaker Change: Customization and personalization of two other areas that we believe will drive engagement and relevance across our community.

Speaker Change: On the customization side, we have seen the power of this added level of engagement, while we've steadily added options, we still have limitations on how our customers can customize product across color plant placement and character count. These are all areas. We plan to advance this year, along with better placement of these options in the bi flow. Additionally, we're looking at a range of functions this year.

Trina: At our reach we expect to make important strides this year in better reaching new and existing customers I've discussed some of these compelling data points in the past over 80% of our health care professionals are outside of the United States over 60% of non fixed customers want to try and feel the product before they purchase and an estimated 15%.

John Cahill: That can further broaden both what can already be customized and what we have yet to tackle on.

Trina: The industry is BBB with institutions buying for their teams with an outsized international opportunity.

John Cahill: On the personalization side, we have opportunities to build more powerful customer journeys.

Trina: We have not moved fast enough to support these initiatives are significant pockets of customers that are just not reaching in an optimal way today, you will see us take more action and accelerated our investment across each of these channels. This year to unlock growth in 2026 and beyond.

John Cahill: The DTC business that is built on data we have a unique understanding of how of our community who they are where they work what products they like how and when they like to shop and what the replenishment cycle is.

Trina Spear: One, how we bring great, innovative products to address customer needs. Two, how we develop deep, authentic connections. Three, how we find new ways to expand our reach and impact. On the product side, we elevated our core scrub wear business, delivering pinnacle offerings like our Team USA collection and our Extremes Line, as well as differentiated silhouettes such as the wide-leg Isabel scrub pant and straight and flare scrub leggings. We continue to expand the brand's opportunity beyond the core, building out product solutions across a range of exciting categories, under scrubs, outerwear, even loungewear in Q4. We leverage product partnerships to extend our opportunity even further, including unique development work with New Balance and Eko, our digital stethoscope partner. We built authentic connections as we continue to elevate, serve, and support healthcare professionals.

John Cahill: Ultimately, we have the ability to stay one step ahead, so that we can drive increasingly engaging experience for our community both on and offline.

Trina: Starting with our international expansion opportunity our key focus this year is to execute our push into Asia, starting with our planned opening of Japan in Q2 in South Korea. Later. This year. These are inherently more complex market and we are investing support localized language translation dedicated creative and marketing support.

John Cahill: Combining all these elements we are hyper focused on building off our lessons last year and you should see us better align our storytelling, our product innovation and the timing of our messaging when it matters most to health care professionals.

John Cahill: Looking at our reach we expect to make important strides this year in better reaching new and existing customers I've discussed some of these compelling data points in the past over 80% of our health care professionals are outside of the United States over 60% of non fixed customers want to try and feel the product before they purchase and an estimated 15%.

Trina: While near term expectations are modest for these markets. We believe these markets are well positioned for brand success as we look to make an impact with the local health care community.

Trina: In addition to Asia, we plan to leverage our technology platform to better activate our work with many of our global markets.

Trina: This includes developing ways to drive deeper connections in these market further localizing, our messaging, our assortment and our on the ground and impact.

John Cahill: The industry is b to b with institutions buying for their teams with an outsized international opportunity.

Trina: <unk> expansion will be in focus as we look to build out our teams business and leverage other locally relevant pathways to the consumer.

John Cahill: We have not moved fast enough to support these initiatives. There are significant pockets of customers that are just not reaching in an optimal way today, you will see us take more action and accelerated our investment across each of these channels. This year to unlock growth in 2026 and beyond.

Trina Spear: This work was highlighted by our work to put healthcare professionals in the spotlight through our Olympics campaign, which was our largest brand campaign ever. We made investments to support better customer experience through our transition to a scalable, high-tech fulfillment center. Most important to who we are, we supported our community in unique, powerful ways, including our partnership to open the FIGS operating theater and ICU in Kenya, as well as the ongoing advocacy on our Awesome Humans Bill on Capitol Hill. To magnify these efforts, we focused on expanding how and where we reach customers. As we think globally, we entered 10 new countries in 2024 while continuing to scale to 20-plus international markets. We continue to test the pinnacle retail experience through the opening of our second community hub in Philadelphia.

Trina: Speaking of team the global opportunity has been apparent for awhile now to build off our strong foundation. We recently brought in a dedicated leader with 20 years of sales leadership experience across the healthcare industry. This role includes both our existing inbound efforts and also the formulation of an outbound sales function, notably we started building an outbound customer pipeline in 2020.

Starting with our international expansion opportunity our key focus this year is to execute our push into Asia, starting with our planned opening of Japan in Q2 in South Korea. Later. This year. These are inherently more complex markets and were investing support localized language translation dedicated creative and marketing support.

Trina: And blended jumpstart. These efforts this year with the creation of an outbound team beyond this outbound initiatives. We also plan to execute additional solutions to simplify and expand the team's experience.

John Cahill: While near term expectations are modest for these markets. We believe these markets are well positioned for brand success as we look to make an impact with the local health care community.

Trina: Our nascent retail store side, we continued to see the value of having an impactful physical presence in the market.

John Cahill: In addition to Asia, we plan to leverage our technology platform to better activate our work with many of our global markets.

Trina Spear: We evolved our B2B Teams platform to open access to more customers, offer a full range of products, and offer new solutions like our gifting platform. Narrowing our focus to Q4, we are energized to end the year on a positive note. Revenues grew 5% year over year, outpacing our implied range for the quarter, with positive signs that our strategies are taking hold. This includes the ongoing upswing we are seeing in repeat frequency, supported by impactful product and color launches and a higher level of non-promotional sales. Looking at some of the standouts for the period, scrub wear was positive for the third straight quarter, while non-scrub wear snapped back to strong growth after some of the pressure points we outlined on our Q3 call.

Trina: And we will extend our test learn and apply and win approach in 2025 to start. We're currently planning on at least two new community hubs in the back half of the year. While also implementing operational tools to ensure an omnichannel mentality, we believe theres a lot more to come here and look forward to providing updates in the future.

John Cahill: This includes developing ways to drive deeper connections in these market further localizing our messaging our assortment and are on the ground and impact.

John Cahill: Panel expansion will be in focus as we look to build out our teams business and leverage other locally relevant pathways to the consumer.

Trina: As we first disclosed last quarter. We also expect our long term efforts to be supported by leveraging our minority investment in <unk>, an AI powered multi disciplinary education platform for health care professionals. We expect this platform will debut later this year.

John Cahill: Speaking of teams the global opportunity has been apparent for awhile now to build off our strong foundation and we recently brought in a dedicated leader with 20 years of sales and leadership experience across the health care industry. This role includes both our existing inbound efforts and also the formulation of an outbound sales function, notably we started building an outbound customer pipeline in 2020.

Trina: Before passing along to Sarah I would like to provide a few closing comments on our cash our team and our conviction.

Trina: Our balance sheet strength is a competitive advantage and we plan to prioritize our use of cash in the near term to accelerate investments. We've consistently discussed the opportunities in areas like international teams and retail and as discussed it is now time to move faster with conviction.

John Cahill: Four implanted jumpstart. These efforts this year with accretion of an outbound team beyond this outbound initiatives. We also plan to execute additional solutions to simplify and expand the team's experience.

Trina Spear: Our international business was a standout, growing 45% for the quarter to represent 16% of our net revenues, an all-time high for the brand. Strong Teams momentum continued, delivering over 20% growth for the year and driving some of our excitement ahead of this year's initiatives. On the margin side, gross margins came in at the high end of our outlook, despite the impact from mix. While marketing and G&A expenses showed leverage, selling expenses deleveraged significantly for the period, given the duty reclass impact last year and fulfillment center inefficiencies. Supported by our top line, our overall adjusted EBITDA margins came in above our expectations for the period. We also ended the year at an incredibly strong financial position.

John Cahill: Our nascent retail store side, we continue to see the value of having an impactful physical presence in the market.

Trina: It also means targeted investments in the core ensuring we take bold steps to drive brand awareness and activations each with a global mindset.

John Cahill: And we will extend our test learn apply and win approach in 2025 to start. We're currently planning on at least two new community hubs in the back half of the year. While also implementing operational tools to ensure an omnichannel mentality, we believe theres a lot more to come here and look forward to providing updates in the future.

Trina: Bold moves require bolt team and we have been actively fortifying our leadership over the past year and change.

Trina: Most recently, we brought in John Tan as our new Chief operating Officer, and Michelle Armstrong as our new Chief product Officer, John joins us with over 11 years that revolve clothing, where he most recently led operations for this dynamic online platform. Michelle Most recently served as chief product officer out of our character after serving in a variety of roles for over a decade at Lulu Lemon.

John Cahill: As we first disclosed last quarter. We also expect our long term efforts to be supported by leveraging our minority investment in <unk>, an AI powered multi disciplinary education platform for health care professionals. We expect this platform will debut later this year.

Trina Spear: Supported by positive operating cash flow for the year of approximately $81 million, $45 million of share purchases, and our equity investment in OOG, we finished the year with just over $245 million in net cash and investments on the balance sheet. Despite clear progress in the quarter, we acknowledge not all went to plan during the year. We saw inconsistencies in our performance throughout the year with AOV pressure, more challenging customer acquisition, and a range of pressures and distractions impacting healthcare professionals. We also experienced gross margin pressure from the changing product mixes within our business and absorbed the impact of strategic SG&A investments in marketing and fulfillment. Nonetheless, we ultimately reached record revenue in 2024 and have growing conviction that the industry and our company will continue to normalize following the recent COVID overhang on demand.

Speaker Change: Before passing along to Sarah I would like to provide a few closing comments on our cash our team and our conviction.

I'm incredibly excited to officially welcome both to the team and look forward to their contributions.

Trina: Finally, I want to reiterate our confidence in driving our mission and extending our leadership position over the long term.

Speaker Change: Our balance sheet strength is a competitive advantage and we plan to prioritize our use of cash in the near term to accelerate investments. We've consistently discussed the opportunities in areas like international teams and retail and as discussed it is now time to move faster with condition. It.

Trina: Product innovation is at our core and we remain maniacally focused on the intersection of fabric fit and function our connections and approach to community building drive deep relationships that build frequency and create a halo of awareness. Our channel approach provides powerful feedback and insights that will continue to allow us to extend and personalize our approach globally.

Speaker Change: It also means targeted investments in the core ensuring we take bold steps to drive brand awareness and activations each with a global mindset.

Speaker Change: Bold moves required bold team and we have been actively fortifying our leadership over the past year and change.

Trina: And our team is as strong as ever bringing a multitude of experiences that will help us move quickly, but thoughtfully and a rapidly evolving world.

Recently, we brought in John Tam as our new Chief operating Officer, and Michelle Armstrong as our new Chief product Officer, John joins us with over 11 years that revolve clothing, where he most recently led operations for this dynamic online platform. Michelle Most recently served as chief product officer out of our character after serving in a variety of roles for over a decade at Lulu Lemon.

Trina: These are all competitive advantages in how we will continue to differentiate our brand to drive lasting impacts our customers and communities with that I'll turn it over to Sarah to review the quarter and our 2025 financial plan.

Trina Spear: As we weighed all these factors, we exited the year with a clear view on how our priorities would evolve in 2025. This is guided by two simple principles to drive the long-term health and growth of the brand. First, we need to take near-term actions to prioritize and rebase our efforts. Second, we need to move with more conviction and speed to invest in the opportunities at hand. The near-term action includes three calibrations to our original plan, starting with our promotional positioning. We have seen improvements in our inventory positioning over the past six quarters, at the same time our product introductions are resonating. While we are still focused on optimizing our inventory, we are in a position to become increasingly selective in our promotional cadence.

Sarah: Thanks, Gena I'll start with some of the drivers of our strong fourth quarter performance, where we experienced better than planned results across most of our P&L. I'll then provide our first look at 2025 and some of the key consideration during the year.

Speaker Change: I'm incredibly excited to officially welcome both to the team and look forward to their contributions.

Speaker Change: Finally, I want to reiterate our confidence in driving our mission and extending our leadership position over the long term.

Trina: Finally, we will open up the call for question.

Trina: Looking at Q4, net revenues increased 5% to $151 8 million above our implied outlook for the period.

Speaker Change: Product innovation is at our core and we remain maniacally focused on the intersection of fabric fit and function our connections and approach to community building drive deep relationships that build frequency and create a halo of awareness. Our channel approach provides powerful feedback and insights that will continue to allow us to extend and personalize our approach globally.

Trina: Returning customer traffic in purchase frequency powered our growth for the period with frequency, notably remaining positive for the third straight quarter and strengthening relative to recent trend.

Trina Spear: To be clear, this move is planned to have a negative impact on our top-line performance this year, but it is absolutely the right decision to align with our focus on long-term brand health. Second, we are further calibrating fit. Our work standardizing fit continues, and we have found opportunities to further refine our efforts this year. As we consider the entire range of our product portfolio, we now expect to fully execute and market our fit story in H2 2025. While a longer journey than we initially planned, I'm even more excited with how this additional work and direction will play out as we look to consistently delight our full range of existing and future customers. Finally, we are pausing our planned work to open a Canadian DC.

This positive trend was tempered by customer acquisition trend. Additionally, we are seeing several churn dynamics play out. While this includes the higher rate of customer falling out of the active base. It also includes a higher rate of lap customer coming back to the brand, which we believe is indicative of some of our marketing and product initiatives throughout the year.

Speaker Change: And our team is as strong as ever bringing a multitude of experiences that will help us move quickly, but thoughtfully and a rapidly evolving world.

Speaker Change: These are all competitive advantages in how we will continue to differentiate our brand to drive lasting impacts our customers and communities with that I'll turn it over to Sarah to review the quarter and our 2025 financial plan.

Trina: ANV decreased 1% to $116, primarily reflecting lower units per transaction offset by a higher rate of non promotional sales.

Sarah: Thanks, Gena I'll start with some of the drivers of our strong fourth quarter performance, where we experienced better than planned results across most of our P&L. I'll then provide our first look at 2025 and some of the key considerations during the year. Finally, we will open up the call for questions.

Trina: Overall, our active customers for the trailing 12 months period increased 3% year over year to $2 7 million, while net revenue per active customer decreased 1% to $208.

Trina Spear: This will reduce unneeded complexity this year so that our team can focus on driving efficiency from our new domestic network. At the same time, we expect to offset some of the planned savings of the Canadian DC with additional initiatives across our supply chain, and we still see the opportunity to evolve our global supply chain as we move into 2026 and beyond. In tandem with these actions, we are moving with greater urgency to invest across our core strategies. Starting with our efforts to continue to exceed customer expectations through relevant innovation. Complementing our work to standardize fit, we are excited to advance our fabric story this year. As we have detailed, our product has largely been based on our proprietary FIONx fabric. This is what we're known for and has been the standard for our industry.

Sarah: Looking at Q4, net revenues increased 5% to $151 $8 million above our implied outlook for the period.

Trina: Looking at revenues by category Scrubbed Blair increased 2%, representing 76% of net revenues for the period.

Sarah: Returning customer traffic in purchase frequency powered our growth for the period with frequency, notably remaining positive for the third straight quarter and strengthening relative to recent trend.

Trina: Last quarter, we saw a positive trend in both our limited edition and core styles, which are supported by a strong slate of color launches throughout the period.

Sarah: This positive trend was tempered by customer acquisition trend. Additionally, we are seeing several churn dynamics play out well.

Trina: However performance remained somewhat constrained as we lapped our prior year effort to move through older products and color.

Sarah: While this includes the higher rate of customer falling out of the active base. It also includes a higher rate of lap customer coming back to the brand, which we believe is indicative of some of our marketing and product initiatives throughout the year.

Trina: Non scrubber increased 13%, representing 24% of net revenue, while we were prudently cautious with our key far planning following last quarter's performance, we saw outperformance in both footwear and under scribe during the period.

Sarah: ANV decreased 1% to $116, primarily reflecting lower units per transaction offset by a higher rate of non promotional sales.

Trina Spear: At the same time, customer feedback has shown the opportunity to drive greater functionality across a range of activities and roles. This month, we were excited to launch a brand-new fabrication called FORMx, designed for greater comfort and lower impact environments with an exceptional hand feel, enhanced stretch, and a clean, modern design aesthetic. We plan to methodically expand this platform throughout the year and expect the line to further differentiate our brand in the market. We believe there are additional opportunities to evolve and elevate our fabric stories and look to test additional solutions as we move throughout the year. Beyond fit and fabric, category expansion remains a focus as we address head-to-toe solutions both on and off shift.

Trina: Growth in footwear was supported by our efforts to drive better in stocks and our key 327 and 3447 styles.

Sarah: Overall, our active customers for the trailing 12 months period increased 3% year over year to $2 7 million, while net revenue per active customer decreased 1% 200 meet seller.

Trina: We are also excited to build our under scribes opportunity as we added new red and waffle fabrications to the assortment.

Trina: Gross margin for Q4, our contracted 20 basis points to 67, 3% driving this full year rate in range of our expectations.

Sarah: Looking at revenues by category Scrubbed Blair increased 2%, representing 76% of net revenues for the period.

Trina: On the positive side, we received a larger one time benefit from duty drawback claims from prior periods that we highlighted on our prior earnings call.

Sarah: Similar to last quarter, we saw a positive trend in both our limited edition and core styles, which are supported by a strong slate of color launches throughout the period.

Trina Spear: We have meaningful opportunities ahead to build out some of our less developed categories, outerwear, underscrubs, socks, footwear, each in focus this year and each unlocking new growth opportunities for the brand. It is important to reiterate that these efforts are supported by our ongoing focus on optimizing our inventory and color strategies. Our intentional action in recent quarters has provided a better understanding of where we need to lean in further versus where we need to continue to demonstrate discipline, and we will continue to balance each as we move through 2025. As we strive to deepen our connections with healthcare professionals, we're really excited with how we are evolving our marketing approach this year. After what we would call a more aspirational positioning throughout 2024, we're going back to our roots a bit to focus on showing the everyday moments, whether big and inspiring or small and intimate.

Trina: Offsetting this benefit we continue to see several mix headwinds, including the overall higher sales mix of the non scrubber category as well as the product mixes within both our scrubber and non scrubber category.

Sarah: However performance remained somewhat constrained as we lapped our prior year effort to move through older products and color.

Sarah: Non scrubber increased 13% representing 24% of net revenue, while we were prudently cautious with our Q4 planning following last quarter's performance, we saw outperformance in both footwear and under scrubbers during the period.

Our selling expense for Q4 were $37 9 million, representing 25% of net revenue.

Trina: Third to 19, 4% in Q4 of 2024.

Sarah: Growth in footwear was supported by our efforts to drive better in stocks and our key 327 and 3447 styles we.

Trina: As a reminder, we lapped the outsized favorable selling expense impact of $4 7 million as a result of the inception of our duty reclassification method in Q4 of last year.

We are also excited to build our under scrubs opportunity as we added new red and waffle fabrications to the assortment.

Trina: On an operational standpoint, we continued to see higher logistics costs, including fulfillment expenses as we ramp the operations of our new facility as well as elevated shipping expenses.

Sarah: Gross margin for Q4, our contracted 20 basis points to 67, 3% driving the full year rate in range of our expectations.

Trina Spear: We know the job of a healthcare professional is not bound by a clock or a location, so our year-long exploration of where do you wear FIGS is designed to celebrate all the moments that matter to healthcare professionals. We believe these authentic moments will coincide well with our innovation agenda and help reach and inspire a broad range of healthcare professionals, especially as we think with a global mindset. Customization and personalization are two other areas that we believe will drive engagement and relevance across our communities. On the customization side, we have seen the power of this added level of engagement. While we have steadily added options, we still have limitations on how our customers can customize product across color, font, placement, and character count. These are all areas we plan to advance this year, along with better placement of these options in the buy flow.

Sarah: On the positive side, we received a larger onetime benefit from duty drawback claims from prior periods that we highlighted on our prior earnings call.

Trina: Marketing expense for Q4 was $19 $8 million, representing 13% of net revenue compared to 13, 9% in the prior year period.

Sarah: Offsetting this benefit we continue to see several mix headwinds, including the overall higher sales mix of the non scrubber category as well as the product mixes within both our scrubber and non scrubber category.

Trina: The decrease in marketing expense as a percentage of net revenues was primarily due to lower digital marketing spend particularly following the outsized Q3 investment in conjunction with our campaign during the Olympic games.

Sarah: Our selling expense for Q4 were $37 9 million, representing 25% of net revenue.

Trina: G&A for Q4 were $35 $6 million, representing 23, 4% of net revenues compared to 24, 5% last year.

Sarah: Third to 19, 4% in Q4 of 2024.

Sarah: As a reminder, we lapped the outsized favorable selling expense impact of $4 $7 million as a result of the inception of our duty we classification method in Q4 of last year.

Trina: The decrease in G&A expense rate was primarily related to lower stock based compensation expense and overall expense management effort.

Trina Spear: Additionally, we're looking at a range of functions this year that can further broaden both what can already be customized and what we have yet to tackle. On the personalization side, we have opportunities to build more powerful customer journeys. Being a D2C business that is built on data, we have a unique understanding of our community, who they are, where they work, what products they like, how and when they like to shop, and what their replenishment cycle is. Ultimately, we have the ability to stay one step ahead so that we can drive increasingly engaging experience for our communities, both on and offline. Combining all these elements, we are hyper-focused on building off our lessons last year, and you should see us better align our storytelling, our product innovation, and the timing of our messaging when it matters most to healthcare professionals.

Trina: Combining these items our adjusted EBITDA for Q4 was $21 $1 million with an adjusted EBIT margin of 13, 9% compared to 18, 4% last year.

Sarah: From an operational standpoint, we continued to see higher logistics costs, including fulfillment expenses as we ramp the operations of our new facility as well as elevated shipping expenses.

Trina: Net income for the quarter was $1 9 million or diluted EPS of one <unk> compared to Q4 2023, net income of $10 million and diluted EPS of five.

Sarah: Marketing expense for Q4 was $19 8 million, representing 13% of net revenue compared to 13, 9% in the prior year period the.

Trina: Recapping the full year net revenue reached a record $555 $6 million, an increase of 2% year over year.

Sarah: The decrease in marketing expense as a percentage of net revenues was primarily due to lower digital marketing spend particularly following the outsized Q3 investment in conjunction with our campaign during the Olympic games.

Trina: Gross margin contracted 150 basis points to 67, 6%.

Trina Spear: Looking at our reach, we expect to make important strides this year in better reaching new and existing customers. I've discussed some of these compelling data points in the past. Over 80% of our healthcare professionals are outside of the United States. Over 60% of non-FIGS customers want to try and feel the product before they purchase. An estimated 15% of the industry is B2B, with institutions buying for their teams, with an outsized international opportunity. Simply put, we have not moved fast enough to support these initiatives. There are significant pockets of customers that we're just not reaching in an optimal way today. You will see us take more action and accelerate our investment across each of these channels this year to unlock growth in 2026 and beyond.

Trina: Due to the product mix shift.

Sarah: G&A for Q4 were $35 6 million, representing 23, 4% of net revenues compared to 24, 5% last year.

Trina: Operating expenses Deleveraged to 67, 2% of net revenue compared to 62, 8% in the prior year.

Sarah: The decrease in G&A expense rate was primarily related to lower stock based compensation expense and overall expense management effort.

Trina: As a reminder, this increase included the outsized impact from higher selling expense for the transition to our new distribution center and higher marketing expense to support our Olympics campaign.

Sarah: Combining these items our adjusted EBITDA for Q4 was $21 $1 million with an adjusted EBITDA margin of 13, 9% compared to 18, 4% last year net.

Trina: Adjusted EBIT margin was nine 3% as compared to 15, 8% in the same period last year.

Trina: Looking at our balance sheet, we finished the fourth quarter with cash cash equivalents and short term investments of $245 $1 million.

Sarah: Net income for the quarter was $1 9 million or diluted EPS of <unk> compared to Q4, 2023, net income of $10 million and diluted EPS of <unk>.

Trina: Along with no debt. This total position held essentially flat year over year as our strong cash flow supported our efforts to invest accumulative $90 million. This year for share buyback, our equity investment in <unk> and elevated capital expenditures.

Trina Spear: Starting with our international expansion opportunity, a key focus this year is to execute our push into Asia, starting with our planned opening of Japan in Q2 and South Korea later this year. These are inherently more complex markets, and we're investing to support localized language translation, dedicated creative, and marketing support. While near-term expectations are modest for these markets, we believe these markets are well-positioned for brand success as we look to make an impact with the local healthcare community. In addition to Asia, we plan to leverage our technology platform to better activate our work with many of our global markets. This includes developing ways to drive deeper connections in these markets, further localizing our messaging, our assortment, and our on-the-ground impact. Channel expansion will be in focus as we look to build out our Teams Business and leverage other locally relevant pathways to the consumer.

Sarah: Recapping the full year net revenue reached a record $555 $6 million, an increase of 2% year over year.

Sarah: Gross margin contracted 150 basis points to 67, 6% largely due to the product mix shift.

Trina: Inventory declined 3% year over year to $115 $8 million and is down 35% on a two year basis. After six quarters of targeted inventory reductions and disciplined buying we are starting to reach a healthier level of inventory as we plan our go forward business.

Sarah: Operating expenses Deleveraged to 67, 2% of net revenue compared to 62, 8% in the prior year.

Sarah: As a reminder, this increase included the outsized impact from higher selling expense for the transition to our new distribution center and higher marketing expense to support our Olympics campaign.

As we move throughout 2025, we will continue to work through smaller pockets of inventory, including items with older fit profiles.

Sarah: Adjusted EBIT margin was nine 3% as compared to 15, 8% in the same period last year.

Trina: At the same time, we will look to strategically invest in areas, where we have seen stronger customer demand and to support key growth drivers across our business combined.

Sarah: Looking at our balance sheet, we finished the fourth quarter with cash cash equivalents and short term investments of $245 $1 million.

Trina Spear: Speaking of Teams, the global opportunity has been apparent for a while now. To build off our strong foundation, we recently brought in a dedicated leader with 20 years of sales and leadership experience across the healthcare industry. This role includes both our existing inbound efforts and also the formulation of an outbound sales function. Notably, we started building an outbound customer pipeline in 2024 and plan to jumpstart these efforts this year with the creation of an outbound team. Beyond this outbound initiative, we also plan to execute additional solutions to simplify and expand the team's experience. On our nascent retail store side, we continue to see the value of having an impactful physical presence in the market, and we will extend our test, learn, apply, and win approach in 2025.

Trina: Combined we expect inventory growth to modestly outpaced revenue growth during the year.

Sarah: Along with no debt. This total position held essentially flat year over year as our strong cash flow supported our efforts to invest accumulative $90 million. This year for share buyback, our equity investment in <unk> and elevated capital expenditures.

Trina: Looking closer at capital allocation, we repurchased $38 $2 million worth of shares during the quarter at an average price of $4 87.

Trina: Ending the year with approximately $4 $6 million remaining under our previously announced $50 million share repurchase program.

Sarah: Inventory declined 3% year over year to $115 $8 million and is down 35% on a two year basis. After six quarters of targeted inventory reductions and disciplined buying we are starting to reach a healthier level of inventory as we plan our go forward business.

Trina: Rounding out our financial capital expenditures for the year were elevated at $17 million with the majority related to the Buildout of our new system in center.

Trina: And we delivered another quarter of strong free cash flow at $27 1 million driving our full year total to $64 1 million.

Trina Spear: To start, we're currently planning on at least two new community hubs in the H2, while also implementing operational tools to ensure an omni-channel mentality. We believe there's a lot more to come here and look forward to providing updates in the future. As we first disclosed last quarter, we also expect our long-term efforts to be supported by leveraging our minority investment in OOG, an AI-powered, multidisciplinary education platform for healthcare professionals. We expect this platform will debut later this year. Before passing along to Sarah, I would like to provide a few closing comments on our cash, our team, and our conviction. Our balance sheet strength is a competitive advantage, and we plan to prioritize our use of cash in the near term to accelerate investments.

Sarah: As we move throughout 2025, we will continue to work through smaller pockets of inventory, including items with older fit profiles.

Trina: Now turning to our outlook, we expect net revenues for fiscal 2025 to be down in the low single digit range year over year, reflecting headwinds from less promotions and the potential for a decline in active customer.

Sarah: At the same time, we will look to strategically invest in areas, where we have seen a stronger customer demand and to support key growth drivers across our business combined.

Combined we expect inventory growth to modestly outpaced revenue growth during the year.

Trina: Regarding promotion, while we will retain some flexibility and responsiveness based on market conditions, we are coming into the year expecting a meaningful reduction and how we plan our promotional composition. This.

Sarah: Looking closer at capital allocation, we repurchased $38 $2 million worth of shares during the quarter at an average price of $4 87.

Trina: This means curtailing statewide or those that are not aligned with our long term brand positioning.

Sarah: Ending the year with approximately $4 $6 million remaining under our previously announced $50 million share repurchase program.

Trina: Relatedly, we are factoring in the potential for a slower rate of new customer growth and higher churn, particularly as we work through this new promotional baseline.

Trina Spear: We have consistently discussed the opportunities in areas like international, teams, and retail, and as discussed, it is now time to move faster with conviction. It also means targeted investments in the core, ensuring we take bold steps to drive brand awareness and activation, each with a global mindset. Bold moves require a bold team, and we have been actively fortifying our leadership over the past year and change. Most recently, we have brought in Jon Tam as our new Chief Operating Officer and Michelle Armstrong as our new Chief Product Officer. Jon joined us with over 11 years at REVOLVE, where he most recently led operations for this dynamic online platform. Michelle most recently served as Chief Product Officer at Arc'teryx after serving in a variety of roles for over a decade at lululemon.

Sarah: Rounding out our financial capital expenditures for the year were elevated at $17 million with the majority related to the Buildout of our new system in center.

Trina: Our efforts will continue to focus on building upon our recent success at driving frequency of our existing customers and re engaging lapsed customers.

Sarah: And we delivered another quarter of strong free cash flow at $27 1 million driving our full year total to $64 1 million.

Trina: At the same time, we were more heavily invest in areas that will help support future customer growth and engagement, including channel growth across international teams and retail all of which are expected to have a much more meaningful impact beyond 2025.

Sarah: Now turning to our outlook, we expect net revenues for fiscal 2025 to be down in the low single digit range year over year, reflecting headwinds from less promotions and the potential for a decline in active customer.

Trina: While we typically do not provide intra quarter commentary year over year net revenue growth had trended positive to start the year.

Sarah: Regarding promotions, while we will retain some flexibility and responsiveness based on market conditions, we are coming into the year expecting a meaningful reduction and how we plan our promotional composition. This.

Trina: Expect the change in our promotional stance to negatively impact the balance of the quarter.

Trina Spear: I'm incredibly excited to officially welcome both to the team and look forward to their contributions. Finally, I want to reiterate our confidence in driving our mission and extending our leadership position over the long term. Product innovation is at our core, and we remain maniacally focused on the intersection of fabric, fit, and function. Our connections and approach to community building drive deep relationships that build frequency and create a halo of awareness. Our channel approach provides powerful feedback and insights that will continue to allow us to extend and personalize our approach globally. Our team is as strong as ever, bringing a multitude of experiences that will help us move quickly but thoughtfully in a rapidly evolving world. These are all competitive advantages in how we will continue to differentiate our brand to drive lasting impact to our customers and communities.

Trina: As such we expect Q1 net revenues to be approximately flat year over year.

Sarah: This means curtailing statewide on those that are not aligned with our long term brand positioning.

Trina: Turning to gross margin, we expect full year gross margins to be approximately flat from the 67, 6% level achieved in fiscal 2024.

Sarah: Relatedly, we are factoring in the potential for a slower rate of new customer growth and higher churn, particularly as we work through this new promotional baseline.

Trina: This is an area, where we should see a positive impact from our actions to dial back promotion, which we expect to be largely offset by some ongoing product mix headwind for.

Sarah: Our efforts will continue to focus on building upon our recent success at driving frequency of our existing customers and re engaging lapsed customers.

Trina: For Q1, we expect gross margins to be down approximately 100 basis points year over year to a level, which is more in line with recent trends with better performance for the balance of the year supported by full price selling.

Sarah: At the same time, we were more heavily invest in areas that will help support future customer growth and engagement, including channel growth across international teams and retail all of which are expected to have a much more meaningful impact beyond 2025.

Trina: On the expense side, we expect total SG&A leverage for the year, though as I'll discuss this is driven by lower stock based compensation.

Trina Spear: With that, I'll turn it over to Sarah to review the quarter and our 2025 financial plan.

Sarah: While we typically do not provide intra quarter commentary year over year net revenue growth had trended positive to start the year that we expect the change in our promotional stance to negatively impact the balance of the quarter.

Trina: In selling expense, we will be lapping last year's transitory expenses at the new fulfillment center.

Sarah Oughtred: Thanks, Trina. I'll start with some of the drivers for our strong Q4 performance, where we experienced better than planned results across most of our P&L. I'll provide our first look at 2025 and some of the key considerations during the year. Finally, we will open up the call for questions. Looking at Q4, net revenues increased 5% to $151.8 million, above our implied outlook for the period. Returning customer traffic and purchase frequency powered our growth for the period, with frequency notably remaining positive for the third straight quarter and strengthening relative to recent trends. This positive trend was tempered by customer acquisition trends. Additionally, we are seeing several churn dynamics play out.

Trina: At some offset from the ongoing inefficiencies at this facility as we work to improve our topline.

Sarah: As such we expect Q1 net revenues to be approximately flat year over year.

Trina: Additionally, we expect to incur higher shipping cost to service our growing mix of international.

Sarah: Turning to gross margin, we expect full year gross margins to be approximately flat from the 67, 6% level achieved in fiscal 2020 for.

Trina: In marketing, we expect a modestly lower expense rate with the Outsize Olympics investment from last year to be largely offset by incremental investments across our marketing funnel and to accelerate our channel strategy.

Sarah: This is an area, where we should see a positive impact from our actions to dial back promotion, which we expect to be largely offset by some ongoing product mix headwind.

Trina: In G&A, we will incur higher people costs as the annualized 2024 higher support our 2025 investment plans and stabilize incentive compensation we.

Sarah: For Q1, we expect gross margins to be down approximately 100 basis points year over year to a level, which is more in line with recent trend with better performance for the balance of the year supported by full price selling.

Sarah Oughtred: While this includes a higher rate of customers falling out of the active base, it also includes a higher rate of lapsed customers coming back to the brand, which we believe is indicative of some of our marketing and product initiatives throughout the year. AOV decreased 1% to $116, primarily reflecting lower units per transaction, offset by a higher rate of non-promotional sales. Overall, our active customers for the trailing 12-month period increased 3% year over year to 2.7 million, while net revenues for active customers decreased 1% to $208. Looking at revenues by category, scrub wear increased 2%, representing 76% of net revenues for the period.

Trina: We expect these investments to be more than offset by an estimated reduction in stock based compensation of approximately $13 million due to the roll off of certain long term grant associated with our IPO and the completed vesting of grant NIE to our executive chair upon her transition to that rule.

Sarah: On the expense side, we expect total SG&A leverage for the year, though as I'll discuss this is driven by lower stock based compensation.

Sarah: In selling expense, we will be lapping last year's transitory expenses at the new fulfillment center.

Trina: Together, we expect adjusted EBIT margins for full year 2025 of between 9% to nine 5%, notably this range straddles our 2024 performance, which just came in meaningfully higher than our prior outlook.

Sarah: Some offset from the ongoing inefficiencies at this facility as we work to improve our top line.

Sarah: Additionally, we expect to incur higher shipping costs to service, our growing mix of international.

Sarah: In marketing, we expect a modestly lower expense rate with the Outsize Olympics investment from last year to be largely offset by incremental investments across our marketing funnel and to accelerate our channel strategy.

Trina: For Q1, we expect adjusted EBITDA margins between five 5% to 6%.

Trina: Note two additional nuances as you consider your model both influenced by stock based comp.

Sarah Oughtred: Similar to last quarter, we saw a positive trend in both our limited-edition and core styles, which were supported by a strong slate of color launches throughout the period. However, performance remained somewhat constrained as we lapped our prior year efforts to move through older products and colors. Non-scrubwear increased 13%, representing 24% in net revenues. While we were prudently cautious with our Q4 planning following last quarter's performance, we saw outperformance in both footwear and underscrubs during the period. Growth in footwear was supported by our efforts to drive better in-stocks in our key 327 and 3447 styles. We are also excited to build our underscrubs opportunity as we added new Ribbed and Waffle fabrications to the assortment. Gross margin for Q4 contracted 20 basis points to 67.3%, driving the full year rate in range of our expectations.

Sarah: In G&A, we will incur higher people costs as the annualized 2024 hires support our 2025 investment plans and stabilize incentive compensation we.

Trina: Given our adjusted EBIT targets adjust for stock based comp, we would expect a stronger GAAP operating margin improvement for the year relative to the implied change in adjusted EBIT margin.

Sarah: We expect these investments to be more than offset by an estimated reduction in stock based compensation of approximately $13 million due to the roll off of certain long term grant associated with our IPO and the completed vesting of grant need to our executive chair upon her transition to that role.

Trina: Second the improved pretax income combined with a significant reduction in non deductible stock based comp will have implications on our effective tax rate, which we estimate will be closer to 45% for the year as opposed to the 81% effective tax rate in fiscal 2024.

Sarah: Together, we expect adjusted EBITDA margins for full year 2025 of between 9% to nine 5%, notably this range straddles our 2024 performance, which just came in meaningfully higher than our prior outlook.

Trina: As we look at our capital allocation plan, we continue to operate from a position of strength, given our clean balance sheet and strong cash flow.

Trina: Our capital expenditure requirements will be more modest in 2025 at approximately $5 million.

Sarah: For Q1, we expect adjusted EBITDA margins of between five 5% to 6%.

Trina: Primarily to support our retail expansion and other foundational investments cash.

Sarah: We would note two additional nuances as you consider your model both influenced by stock based comp.

Trina: Cash deployment overall will be prioritized to accelerate our investments to support growth, yielding lower free cash flow in 2025 relative to prior years.

Sarah Oughtred: On the positive side, we received a larger one-time benefit from duty drawback claims from prior periods that we highlighted on our prior earnings call. Offsetting this benefit, we continue to see several mix headwinds, including the overall higher sales mix of the non-scrub wear category, as well as the product mixes within both our scrub wear and non-scrub wear categories. Our selling expense for Q4 was $37.9 million, representing 25% of net revenues, compared to 19.4% in Q4 of 2022. As a reminder, we lapped the outsized favorable selling expense impact of $4.7 million as a result of the inception of our duty reclassification method in Q4 last year. From an operational standpoint, we continued to see higher logistics costs, including fulfillment expenses, as we ramp the operations of our new facility, as well as elevated shipping expenses.

Sarah: First given our adjusted EBIT target adjust for stock based comp we would expect a stronger GAAP operating margin improvement for the year relative to the implied change in adjusted EBITDA margin.

Trina: <unk> by these factors our board of directors has authorized an additional $50 million share repurchase program. We will remain opportunistic with our approach in the market as we look to return value to shareholders overtime.

Sarah: Second the improved pretax income combined with a significant reduction in non deductible stock based comp.

Trina: Overall, we believe we are in a strong position to take decisive action. This year to support the long term health and growth of the brand as we rebase and begin to strengthen some of our top line drivers. This year, we are fueling future momentum by leveraging some of our margin tailwind coming off of 2024.

Sarah: Have implications on our effective tax rate, which we estimate will be closer to 45% for the year as opposed to the 81% effective tax rate in fiscal 2024.

As we look at our capital allocation plan, we continue to operate from a position of strength, given our clean balance sheet and strong cash flow.

Trina: While these actions will limit near term EBIT margin expansion. We are opportunistic that these investments to support a stronger topline will start to support fixed cost leverage this will put us in a position to balance margin flow with additional opportunities to accelerate the flywheel.

Sarah: Our capital expenditure requirements will be more modest in 2025 at approximately $5 million, primarily to support our retail expansion and other foundational investments.

Sarah: Cash deployment overall will be prioritized to accelerate our investments to support growth, yielding lower free cash flow in 2025 relative to prior years.

Trina: And with our balance sheet and cash flow, we see ongoing optionality to drive performance and shareholder value over time.

Sarah Oughtred: Marketing expense for Q4 was $19.8 million, representing 13% of net revenues, compared to 13.9% in the prior year period. The decrease in marketing expense as a percentage of net revenues was primarily due to lower digital marketing spend, particularly following the outsized Q3 investments in conjunction with our campaign during the Olympic Games. G&A for Q4 were $35.6 million, representing 23.4% of net revenues, compared to 24.5% last year. The decrease in G&A expense rate was primarily related to lower stock-based compensation expense and overall expense management efforts. Combining these items, our adjusted EBITDA for Q4 was $21.1 million, with an adjusted EBITDA margin of 13.9%, compared to 18.4% last year. Net income for the quarter was $1.9 million, or diluted EPS of $0.01, compared to Q4 2023 net income of $10 million and diluted EPS of $0.05.

Trina: With that I will turn it back over to the operator for Q&A operator.

Sarah: Supported by these factors our board of directors has authorized an additional $50 million share repurchase program.

Trina: Thank you.

Sarah: We will remain opportunistic with our approach in the market as we look to return value to shareholders over time.

Trina: We will now be moving into our Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad if.

Sarah: Overall, we believe we are in a strong position to take decisive action. This year to support the long term health and growth of the brand as we rebase and begin to strengthen some of our top line drivers. This year, we are fueling future momentum by leveraging some of our margin tailwind coming off of 2024.

Trina: I do like to remove your question Press Star followed by two again to ask your question Press Star One now as a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking a question. We are also limiting the questions did have one question and one follow up we will now briefly pause as questions are being registered.

Sarah: While these actions will limit near term EBITDA margin expansion. We are opportunistic that these investments to support a stronger topline will start to support fixed cost leverage this will put us in a position to balance margin flow with additional opportunities to accelerate the flywheel and with our balance sheet and cash flow we see ongoing.

Speaker Change: Our first question comes from Brooke Roach of Goldman Sachs.

Trina: Your line is now open.

Speaker Change: Good afternoon, and thank you for taking our question.

Speaker Change: I was hoping you could speak to your plans to maintain and Reengage lapsed customers as you move through our promotional reset, which typically does come with a period of higher churn. You also spoke a little bit about a lower trend of new customer acquisition can you speak to your plans for marketing to that too.

Sarah: <unk> optionality to drive performance and shareholder value over time.

Sarah: With that I will turn it back over to the operator for Q&A operator.

Sarah Oughtred: Recapping the full year, net revenue reached a record $555.6 million, an increase of 2% year-over-year. Gross margin contracted 150 basis points to 67.6%, largely due to the product mix shift. Operating expenses deleveraged to 67.2% of net revenues, compared to 62.8% in the prior year. As a reminder, this increase included the outsized impact from higher selling expense for the transition to our new distribution center and higher marketing expense to support our Olympic Games campaign. Adjusted EBITDA margin was 9.3%, as compared to 15.8% in the same period last year. Looking at our balance sheet, we finished the Q4 with cash equivalents, and short-term investments of $245.1 million, along with no debt.

Sarah: Thank you.

Speaker Change: Those customers. So that you can reaccelerate that acquisition trend. Thank you.

Sarah: We will now be moving to our Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad if.

Speaker Change: I can take that hi broke it Sarah.

Sarah: If you'd like to remove your question Press Star followed by two again to ask your question Press Star One now as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question. We are also limiting the questions did have one question and one follow up we will now briefly pause as questions are being registered.

Speaker Change: Yes, we have been seeing some headwinds on acquisition and we believe that is partly impacted by our promotional cadence as we head into 2025.

Speaker Change: We are looking to readjust that promotional outlook.

Speaker Change: And that was outlined in the script there and.

Sarah: Our first question comes from Brooke Roach of Goldman Sachs.

Speaker Change: We are going to be making investment into both our existing brand effort plus adding on to upper funnel to increase our awareness and consideration.

Sarah: Your line is now open.

Speaker Change: Good afternoon, and thank you for taking our question.

Speaker Change: I was hoping you could speak to your plans to maintain and Reengage lapsed customers as you move through our promotional reset, which typically does come with a period of higher churn. You also spoke a little bit about a lower trend of new customer acquisition can you speak to your plans for marketing to that too.

Speaker Change: And we will also be making targeted investments into the customer funnel to help with our retention trends.

Sarah Oughtred: This total position held essentially flat year over year as our strong cash flow supported our efforts to invest a cumulative $90 million this year for share buybacks, our equity investment in OOG, and elevated capital expenditures. Inventory declined 3% year over year to $115.8 million and is down 35% on a two-year basis. After 6 quarters of targeted inventory reductions and disciplined buying, we are starting to reach a healthier level of inventory as we plan our go-forward business. As we move throughout 2025, we will continue to work through smaller pockets of inventory, including items with older fit profiles. At the same time, we will look to strategically invest in areas where we have seen stronger customer demand and to support key growth drivers across our business. Combined, we expect inventory growth to modestly outpace revenue growth during the year.

Speaker Change: Great and if I could just follow up on the supply chain you talked about some investments that you are continuing to make there I think I also heard you say that youre pausing the Canadian distribution center investment a lot of investors had expected supply chain to become a bigger source.

Speaker Change: Those customers. So that you can reaccelerate that acquisition trend. Thank you.

Speaker Change: Yeah, I can take that hi broke it Sarah.

Speaker Change: Yes, we have been seeing some headwinds on acquisition and we believe that is partly impacted by our promotional cadence as we head into 2025.

Speaker Change: Of opportunity for margin expansion. This year can you talk about what those investments are and your opportunity to leverage that supply chain and distribution center fulfillment overtime.

Speaker Change: We are looking to readjust that promotional outlook.

Speaker Change: Yeah. So we have a new CLO that has come in and really evaluated our roadmap and that roadmap has just been reassessed for where we think there is the best opportunity both in terms of.

Speaker Change: And that was outlined in the script there and.

Speaker Change: We are going to be making investments into both our existing brand efforts plus adding on to upper funnel to increase our awareness and consideration.

Speaker Change: Optimization and savings opportunities as well as opportunities to focus on some bigger pieces and so we actually see that there is a really good opportunity for improvement by just focusing on our current distribution facility to optimize and transform their.

Speaker Change: And we will also be making targeted investments into the customer funnel to help with our retention trends.

Sarah Oughtred: Looking closer at capital allocation, we repurchased $38.2 million worth of shares during the quarter at an average price of $4.87, ending the year with approximately $4.6 million remaining under our previously announced $50 million share repurchase program. Rounding out our financials, capital expenditures for the year were elevated at $17 million, with the majority related to the build-out of our new fulfillment center. We delivered another quarter of strong free cash flow at $27.1 million, driving our full-year total to $64.1 million. Now turning to our outlook. We expect net revenues for fiscal 2025 to be down in the low single-digit range year over year, reflecting headwinds from less promotions and the potential for a decline in active customers.

Speaker Change: Great and if I could just follow up on the supply chain you talked about some investments that you are continuing to make there I think I also heard you say that youre pausing the Canadian distribution center investment a lot of investors had expected supply chain to become a bigger source.

Speaker Change: Canada D C will be part of it.

Speaker Change: But not in 2025.

Speaker Change: Great. Thanks, so much I'll pass it on.

Speaker Change: Of opportunity for margin expansion. This year can you talk about what those investments are and your opportunity to leverage that supply chain and distribution center fulfillment overtime.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Brian Nagel of Oppenheimer.

Speaker Change: Your line is now open.

Brian Nagel: Hi, good evening.

Speaker Change: Yeah. So we have a new CLO that has come in and really evaluated our roadmap and that roadmap has just been reassessed for where we think there is the best opportunity both in terms of.

Speaker Change: So.

Speaker Change: A couple of questions first.

Speaker Change: I know we discussed this in his prepared remarks, but I wanted to ask I want to understand better.

Speaker Change: How would you explain or help me understand that.

Speaker Change: Kind of the dynamic between your fourth quarter nice beat sales acceleration.

Speaker Change: Optimization and savings opportunities as well as opportunities to focus on some bigger pieces and so we actually see that there is a really good opportunity for improvement by just focusing on our current distribution facility to optimize and transform their.

Speaker Change: Profit acceleration, we've been more downbeat guidance for 25 or so.

Sarah Oughtred: Regarding promotions, while we will retain some flexibility and responsiveness based on market conditions, we are coming into the year expecting a meaningful reduction in how we plan our promotional composition. This means curtailing site-wide promos that are not aligned with our long-term brand positioning. Relatedly, we are factoring in the potential for a slower rate of new customer growth and higher churn, particularly as we work through this new promotional baseline. Our efforts will continue to focus on building upon our recent successes, driving frequency of our existing customers, and re-engaging lapsed customers. At the same time, we will more heavily invest in areas that will help support future customer growth and engagement, including channel growth across international teams and retail, all of which are expected to have a much more meaningful impact beyond 2025.

Speaker Change: What's the bridge there and then I guess.

So why I'm asking without too as you look at that initial guidance recognizing it's early in the year or two it's a fluid backdrop et cetera or is the guidance.

Speaker Change: Canada, DC will be part of it.

Speaker Change: But not in 2025.

Speaker Change: One for 25, consistent with what Youre seeing in the business now or is there. Some is there some degree of conservatism based on that versus what we saw in the fourth quarter.

Speaker Change: Great. Thanks, so much I'll pass it on.

Speaker Change: Great.

Speaker Change: Hey, Brian.

Speaker Change: Thank you.

Speaker Change: So in terms of the fourth quarter. So we went into the fourth quarter with prudently cautious guidance as we came out of Q3 that did miss our expectations.

Speaker Change: Our next question comes from Brian Nagel of Oppenheimer.

Speaker Change: Your line is now open.

Brian Nagel: Hi, good evening.

Brian Nagel: So.

Brian Nagel: Couple of questions first.

Speaker Change: As we went through Q4, we did see some performance gains on color, but we did see a softer black Friday cyber Monday performance.

Brian Nagel: I know we've discussed this in the prepared remarks, but I wanted to ask I want to understand better.

Brian Nagel: Can you explain or help me understand that.

Brian Nagel: The kind of.

Brian Nagel: The dynamic between your fourth quarter nice beat sales acceleration.

Speaker Change: And so it really came in December as we had additional color launches this year and that's where we really started to see some traction on our business as usual days.

Sarah Oughtred: While we typically do not provide inter-quarter commentary, year-over-year net revenue growth had trended positive to start the year, though we expect the change in our promotional stance to negatively impact the balance of the quarter. As such, we expect Q1 net revenue to be approximately flat year-over-year. Turning to gross margin, we expect full year gross margins to be approximately flat from the 67.6% level achieved in fiscal 2024. This is an area where we should see a positive impact from our actions to dial back promotions, which we expect to be largely offset by some ongoing product mix headwinds. For Q1, we expect growth margins to be down approximately 100 basis points year-over-year to a level which is more in line with recent trends, with better performance for the balance of the year, supported by full price selling.

Brian Nagel: Profit acceleration, we've been more downbeat guidance for 25 or so.

Brian Nagel: What's the bridge there and then I guess I wanted to ask without too as you look at that initial guidance recognizing it's early in the year. There was a fluid backdrop et cetera or is the guidance.

Speaker Change: And we did see outperformance in our December promo that happened very much at the end of the quarter and so as we go into 2025, our guidance does reflect a few different dynamics. So one we have been seeing headwinds and lower growth rates in our active customer base.

Brian Nagel: One for 25, consistent with what Youre seeing in the business now or is there. Some is there some degree of conservatism based on that versus what we saw in the fourth quarter.

Brian Nagel: Great.

Speaker Change: So playing that forward there is the potential for that Q decline and then we also are making a shift in promotion.

Brian Nagel: Hey, Brian.

Brian Nagel: So in terms of the fourth quarter. So we went into the fourth quarter with prudently cautious guidance as we came out of Q3 that did miss our expectations.

Speaker Change: And so you can expect that that will have a few points headwind on growth for 2025.

Brian Nagel: As we went through Q4, we did see some performance gains on color, but we did see a softer black Friday cyber Monday performance.

Speaker Change: And I think those are the main pieces that bridge you from some outperformance in Q4, two how we're positioning 2025.

Sarah Oughtred: On the expense side, we expect total SG&A leverage for the year, though as I'll discuss, this is driven by lower stock-based compensation. In selling expense, we will be lapping last year's transitory expenses at the new fulfillment center. Though expect some offset from the ongoing inefficiencies at this facility as we work to improve our top line. Additionally, we expect to incur higher shipping costs to service our growing mix of international. In marketing, we expect a modestly lower expense rate with the outsized Olympics investments from last year to be largely offset by incremental investments across our marketing funnel and to accelerate our channel strategies. In G&A, we will incur higher people costs as we annualize 2024 hires, support our 2025 investment plans, and stabilize incentive compensation.

Brian Nagel: And so it really came in December as we had additional color launches this year and that's where we really started to see some traction on our business as usual days.

Speaker Change: What we're putting in front of these here is a forecast that we feel confident executing against.

Speaker Change: And continue to play that out over the year.

Speaker Change: No. That's helpful. I guess the follow up question I have and it's going to be a follow up to that but longer term I know we've discussed this in the past, but you know as you look at the business today and again the guidance you pointed out there for 25.

Brian Nagel: And we did see outperformance in our December promo that happened very much at the end of the quarter and so as we go into 2025, our guidance does reflect a few different dynamics. So one we have been seeing headwinds and lower growth rates in our active customer base.

Speaker Change: What are the what are the building blocks to get to get fixed back to that normalized growth.

Brian Nagel: So playing that forward there is the potential for that to decline and then we also are making a shift in promotion.

Speaker Change: It has to happen and I guess within that context of the question is how much of it's just the environment versus your levers that you as a management team to pull here.

Brian Nagel: And so you can expect that that will have a few points headwind on growth for 2025.

Speaker Change: Great Yeah. So.

Speaker Change: How we're thinking about those building blocks is first and foremost the U S business is the biggest part of our business and it has been declining and so our effort here and the investments that we're making are really about reinvigorating growth and argue that business and that will be really in.

Brian Nagel: And I think those are the main pieces that bridge you from some outperformance in Q4, two how we're positioning 2025.

Sarah Oughtred: We expect these investments to be more than offset by an estimated reduction in stock-based compensation of approximately $13 million due to the roll-off of certain long-term grants associated with our IPO and the completed vesting of grants made to our executive chair upon her transition to that role. Together, we expect adjusted EBITDA margins for full year 2025 of between 9% to 9.5%. Notably, this range straddles our 2024 performance, which just came in meaningfully higher than our prior outlook. For Q1, we expect adjusted EBITDA margins of between 5.5% to 6%. We would note two additional nuances as you consider your model, both influenced by stock-based comp. First, given our adjusted EBITDA targets adjust for stock-based comp, we would expect a stronger GAAP operating margin improvement for the year relative to the implied change in adjusted EBITDA margin.

Brian Nagel: What we're putting in front of you here is a forecast that we feel confident executing against.

And continue to play that out over the year.

Speaker Change: Important for the long term algorithm.

Speaker Change: I think within that we've also seen declining growth rates in our active customer base. So it's really important that we reinvigorate growth are as well. So those are two important blocks just in terms of driving the upside ahead.

Speaker Change: No that's very helpful. That's helpful.

Speaker Change: The follow up question I have and it's going to be a follow up to that but longer term I know we've discussed this in the past, but you know as you look at the business today and again the guidance you pointed out there for 25.

Speaker Change: What are the what are the building blocks to get to get fixed back to that normalized growth.

Speaker Change: Ahead of where it has been along with continuing to build out our retail international and teens channel.

Speaker Change: What has to happen and I guess within that context of the question is how much of it's just the environment versus your levers that you as a management team can pull here.

Speaker Change: And then as that flows through the P&L, it's really going to be that top line expansion, that's really going to help us leverage our bottom line cost.

Speaker Change: Great.

Speaker Change: How we're thinking about those building blocks is first and foremost the U S business is the biggest part of our business and it has been declining and so our efforts here in the investments that we're making are really about reinvigorating growth and argue that business and that will be really.

Speaker Change: US reinvest into the growth for future.

Speaker Change: Got it okay I appreciate it thank you very much.

Sarah Oughtred: The improved pre-tax income, combined with a significant reduction in non-deductible stock-based comp, will have implications on our effective tax rate, which we estimate will be closer to 45% for the year as opposed to the 81% effective tax rate in fiscal 2024. As we look at our capital allocation plans, we continue to operate from a position of strength given our clean balance sheet and strong cash flow. Our capital expenditure requirements will be more modest in 2025 at approximately $5 million, primarily to support our retail expansion and other foundational investments. Cash deployment overall will be prioritized to accelerate our investments to support growth, yielding lower free cash flow in 2025 relative to prior years. Supported by these factors, our board of directors has authorized an additional $50 million share repurchase program.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Our next question comes to John Kernan of.

Speaker Change: Cowen.

Your line is now open.

Speaker Change: Important for the long term algorithm.

Speaker Change: Good afternoon. Good afternoon, thanks for taking my questions.

Speaker Change: Inc. Within that we've also seen declining growth rates in our active customer base. So it's really important that we reinvigorate growth are as well. So those are two important blocks just in terms of driving the upside.

Speaker Change: So how should we think about.

Speaker Change: Yeah.

Speaker Change: Sure.

So how should we think about.

Speaker Change: Both selling and G&A you gave some color earlier in the prepared remarks.

Speaker Change: Selling obviously has several hundred basis points of supply chain fulfillment costs in fiscal 'twenty four and then how does that unwind so to speak and then within G&A. What are the one of the drivers of G&A outside of stock based comp in fiscal 'twenty.

Speaker Change: Head of where it has been.

Speaker Change: Along with continuing to build out our retail international and teens channel.

Speaker Change: And then as that flows through the P&L, it's really going to be that top line expansion, that's really going to help us leverage our bottom line cost and help us reinvest into the growth for future.

Speaker Change: Yeah for sure so are you.

Speaker Change: We had the transitory costs related to R&D fee transition. This year those should normalize into next year that does get partially offset with just our higher fixed cost from operating a much bigger and state of the art facility as well as are any.

Sarah Oughtred: We will remain opportunistic with our approach in the market as we look to return value to shareholders over time. Overall, we believe we are in a strong position to take decisive action this year to support the long-term health and growth of the brand. As we rebase and begin to strengthen some of our top-line drivers this year, we are fueling future momentum by leveraging some of our margin tailwinds coming off of 2024. While these actions will limit near term EBITDA margin expansion, we are opportunistic that these investments to support a stronger top line will start to support fixed cost leverage. This will put us in a position to balance margin flow with additional opportunities to accelerate the flywheel. With our balance sheet and cash flow, we see ongoing optionality to drive performance and shareholder value over time.

Speaker Change: Got it okay I appreciate it thank you very much.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: Our next question comes to John Kernan of TD Cowen.

Speaker Change: Your line is now open hey, good luck.

Speaker Change: <unk> mix of international and the impact on our selling costs.

Speaker Change: Good afternoon, Thanks for taking my questions.

Speaker Change: So how should we think about.

Speaker Change: Still some leverage overall year over year expected, but.

Speaker Change: Sure Youre welcome Sir how should we think about.

Speaker Change: There are still added costs related to operating this new facility.

Speaker Change: Selling and G&A you gave some color earlier in the prepared remarks.

Speaker Change: And then as we go into G&A I mean first on marketing. So we will have a lower rate of marketing, which is recovery of where we invested in Q Olympics, but then now reinvesting back into the business to really drive top line growth.

Speaker Change: Selling obviously has several hundred basis points of supply chain fulfillment costs in fiscal 'twenty four and then how does that unwind so to speak and then within G&A. What are the what are the drivers of G&A outside of stock based comp in fiscal 'twenty.

Speaker Change: Yeah for sure so are you.

Sarah Oughtred: With that, I will turn it back over to the operator for Q&A. Operator?

Speaker Change: And then into the other components of G&A.

Speaker Change: We had the transitory costs related to R&D fee transition. This year those should normalize into next year that does get partially offset with just our higher fixed costs from operating a much bigger and state of the art facility as well as our.

Speaker Change: Within our total and our people cost.

Operator: Thank you. We'll now be moving to our Q&A session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove your question, press star followed by two. Again, to ask your question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We are also limiting the questions to have one question and one follow-up. We'll now briefly pause as questions are being registered. Our first question comes from Brooke Roach of Goldman Sachs. Your line is now open.

Speaker Change: We do have the run rate of investment that we need into 2020 from 2024, and we will continue to invest in resources to support the build out of our teams needed to grow the business and so there will be an impact there.

Speaker Change: And then I did outline already stocked based compensation, so that will go down by $12 million year over year, and so just something to consider is 13 I'm sorry, it was $13 million.

Speaker Change: <unk> mix of international and the impact of thought on our selling costs.

Speaker Change: Still some leverage overall year over year expected, but.

Speaker Change: There are still added costs related to operating this new facility.

Speaker Change: Year over year, then it's going to go down and to selling to consider is that while the adjusted EBITDA guidance is flat year over year, because the add back into the adjustments are lower this year, our EBITDA is actually going to be up year over year and so that is supported by the.

Speaker Change: And then as we go into G&A I mean first on marketing. So we will have a lower rate of marketing, which is recovery of where we invested in Q Olympics, but then now reinvesting back into the business to really drive top line growth.

Brooke Roach: Good afternoon, and thank you for taking our question. Trina, something you could speak to your plans to maintain and reengage lapsed customers as you move through a promotional reset, which typically does come with a period of higher churn. You also spoke a little bit about.

Speaker Change: <unk> and stock based comp with the other factors that I've outlined here.

Speaker Change: And then into the other components of G&A.

Sure got it.

Brooke Roach: a lower trend of new customer acquisition. Can you speak to your plans for marketing to those customers so that you can re-accelerate that acquisition trend? Thank you.

Speaker Change: Just want a quick follow up it looks like rest of the world and non scrubber lifestyle, how are going to take an increasing.

Speaker Change: Within our total and our people cost.

Speaker Change: Do you have the run rate of investment that we need into 2020 from 2024, and we will continue to invest in resources to support the build out of our teams needed to grow the business and so there will be an impact there.

Speaker Change: Portion of the mix as they did in the fourth quarter just curious how both the international channel in these non scrubber categories.

Sarah Oughtred: I can take that. Hi, Brooke. It's Sarah. Yeah, we have been seeing some headwinds on acquisition, and we believe that is partly impacted by our promotional cadence. As we head into 2025, we are looking to readjust that promotional outlook, and that was outlined in the script there. We are going to be making investments into both our existing brand efforts, plus adding on to upper funnel to increase our awareness and consideration. We'll also be making targeted investments into the customer funnel to help with our retention trends.

Speaker Change: From a profitability standpoint, certainly on the gross margin line flow through.

Speaker Change: Yeah. So for international so we have been steadily increasing our proportion of international and expect that that will continue into 2025.

Speaker Change: And then I did outline already stock based compensation, so that will go down by $12 million year over year, and so just something to consider is 13 I'm sorry, it was $13 million.

Speaker Change: Year over year, then it's going to go down and to selling to consider is that while the adjusted EBITDA guidance is flat year over year, because the add back into the adjustments are lower this year, our EBITDA is actually going to be up year over year and so that is supported by the.

Speaker Change: International is profitable for us we do have a different cost profile with some added costs as it relates to duty and shipping and marketing, but still really happy with the profitability there.

Speaker Change: And in terms of non scrubber, so vote each year, we've been increasing the proportion of that business by about a point and we would play forward that same expectation for as we go into 2025.

Speaker Change: <unk> and stock based comp with the other factors that I've outlined here.

Speaker Change: Sure got it.

Speaker Change: I just want a quick follow up it looks like rest of the world and non scrubber lifestyle, how are we going to take an increasing.

Brooke Roach: Great. If I could just follow up on the supply chain. You talked about some investments that you're continuing to make there. I think I also heard you say that you're pausing the Canadian distribution center investment. A lot of investors had expected supply chain to become a bigger source of opportunity for margin expansion this year. Can you talk about what those investments are and your opportunity to leverage that supply chain and distribution center fulfillment over time?

Speaker Change: Portion of the mix as they did in the fourth quarter just curious how both the international channel in these non scrubber categories.

Speaker Change: Got it that's helpful. Thank you.

John: Thanks, John.

Speaker Change: From a profitability standpoint, certainly on the gross margin line go through.

John: Thank you.

Speaker Change: Our next question goes to Dana Telsey of Telsey group.

Speaker Change: Yeah. So for international so we have been steadily increasing our proportion of international and expect that that will continue into 2025.

Speaker Change: Your line is now open.

Speaker Change: Hi, <unk>, Hi, Sarah I Hope your homes and are we spending on tons were okay in L. A and that everyone's all okay.

Speaker Change: Thank you on the product side, you had mentioned about other categories and the opportunities as you think about reactivating customers.

Sarah Oughtred: Yeah. We have a new COO that has come in and really evaluated our roadmap, and that roadmap has just been reassessed for where we think there's the best opportunity, both in terms of optimization and savings opportunities, as well as opportunities to focus on some bigger pieces. We actually see that there is a really good opportunity for improvement by just focusing on our current distribution facility to optimize and transform there. The Canada DC will be part, but not in 2025.

Speaker Change: International is profitable for us we do have a different cost profile with some added costs as it relates to duty and shipping and marketing, but still really happy with the profitability there.

Speaker Change: Are you on that journey in March of 2025 be like in terms of those.

New product category opportunities or is 2025 more year of execution and then just following up on that any tariffs China. How are you preparing and is there anything in the guidance for tariffs. Thank you.

Speaker Change: And in terms of non scrubber, so vote each year, we've been increasing the proportion of that business by about a point and we would play forward that same expectation for as we go into 2025.

Speaker Change: Thanks, Dana I'll start with a product question and then if you take the tariff Sara.

Speaker Change: Got it that's helpful. Thank you.

Speaker Change: So data, we're seeing really great signs of normalization and actually I'll repeat frequency.

John: Thanks, John.

Speaker Change: And our kind of business as usual days, which is great to see and that is a function of.

John: Thank you.

Brooke Roach: Great. Thanks so much. I'll pass it on.

Speaker Change: Our next question goes to Dana Telsey of Telsey group.

Speaker Change: Awesome style and color launches and you saw is about wildfire last year that was incredibly successful our scrub lagging which I mentioned.

Speaker Change: Your line is now open.

Operator: Thank you. Our next question comes from Brian Nagel of Oppenheimer.

Speaker Change: Hi team of high Sara.

Speaker Change: Your homes.

Zero, Okay in L, a and that everyone's all okay.

Speaker Change: Our ribbon waffle under scrubbed are new additions to our under scrubbed category. Those are really taking off our float jacket I don't know if you have our flow Dana that you should try it out in the outerwear category as well as our new 3447.

Brian Nagel: Hi, good evening. A couple questions. First, I know we somewhat discussed this in the prepared remarks, but I just want to get someone to understand better. Just help me explain or help me understand the dynamic between your Q4, a nice beat, sales acceleration or a profit acceleration, but then more downbeat guidance for 2025. What's the bridge there? I guess why I'm asking with that too is, as you look at that initial guidance, I mean, recognizing it's early in the year and it's a fluid backdrop, et cetera, but is the guidance you outlined for 2025 consistent with what you're seeing in the business now or is there some degree of conservatism based on that versus what we saw in the Q4?

Speaker Change: Thank you on the product side Tonight you.

Speaker Change: You had mentioned about other categories and the opportunity as you think about reactivating customers.

Speaker Change: Are you on that journey in March of 2025 be like in terms of those.

Speaker Change: Through our partnership with new balance so we're really focused across the layering system water health care professionals wearing two work at work from work on shifts off shift head to toe.

Speaker Change: New product category opportunities or is 2025 more year of execution and then just following up on that any tariffs China. How are you preparing and is there anything in the guidance for tariffs. Thank you.

Speaker Change: And building out these fabric platforms across category.

Speaker Change: Thanks, Dana I'll start with a product question and then if you take the tariff Sara.

Speaker Change: Where we're focused that's where we really built a lot of foundation in 'twenty four and there is more to come in terms of building out these platforms in 2025, and so very much focused on.

Speaker Change: So data, we're seeing really great signs of normalization and actually I'll repeat frequency.

Speaker Change: Our kind of business as usual days, which is great to see and that is a function of.

Speaker Change: Testing new <unk>.

<unk> platform testing, new products, and then leaning in and doubling down on what's working and so thats what youll continue to see throughout the year, it's all about.

Speaker Change: Awesome style and color launches and you saw Isabel wide leg last year that was incredibly successful our scrub lagging which I mentioned.

Sarah Oughtred: Great. Hey, Brian. In terms of Q4, so we went into Q4 with prudently cautious guidance as we came out of Q3 that did miss our expectations. As we went through Q4, we did see some performance gains on color, but we did see a softer Black Friday, Cyber Monday performance. The beat really came in December as we had additional color launches this year, and that's where we really started to see some traction on our business as usual days. We did see outperformance in our December promo that happened very much at the end of Q4. As we go into 2025, our guidance does reflect a few different dynamics. One, we have been seeing headwinds and lower growth rates in our active customer base. Playing that forward, there is the potential for that to decline.

Speaker Change: Innovation and execution and balancing those two as we go so I'll pass it over to Sarah.

Speaker Change: Our ribbon waffle under scrubbed are new additions to our under scrubbed category. Those are really taking off our float jacket I don't know if you have a flow Dana that you should try it out in the outerwear category as well as our new 3447.

Sarah: Yes, so on tariffs.

Sarah: Have minimal direct exposure to China on our finished goods.

We have some indirect exposure from partners like new balance that would have exposure to China, we have no exposure to Mexico or Canada. So overall.

Through our partnership with new balance so we're really focused across the layering system water health care professionals wearing to work work from work on shift off shift head to toe.

Immaterial exposure.

Sarah: Tariff plan.

Speaker Change: Building out these fabric platforms across category is where we're focused that's where we really built a lot of foundation in 'twenty four and there is more to come in terms of building out these platforms in 2025, and so very much focused on.

Sarah: Got it and then just as you think about the cadence of the year.

Sarah: And improving the business.

Sarah: Are there any meaningful things as you think of the quarterly things, obviously going up against the Olympics advertising from last year, which was more more one more one off how do you think about the cadence of the year anything we should be mindful off thank you.

Speaker Change: Testing, new fabric platform testing, new products, and then leaning in and doubling down on what's working and so thats what youll continue to see throughout the year, it's all about.

Sarah: Yeah sure so.

Sarah: The promotional adjustments will be more weighted impact in two H.

Sarah Oughtred: We also are making a shift in promotion. You can expect that that will have a few points headwind on growth for 2025. I think those are the main pieces that bridge you from some outperformance in Q4 to how we're positioning 2025. What we're putting in front of you here is a forecast that we feel confident executing against, and continue to play that out over the year.

Speaker Change: Obviously innovation and execution and balancing those two as we go so I'll pass it over to Sarah.

Sarah: Yes, so on tariffs, we have minimal direct exposure to China on our finished goods.

Sarah: From a adjusted EBITDA perspective, Q1 will likely be our lowest Q4 next lowest and then.

Sarah: We have some indirect exposure from partners like new balance that would have exposure to China, we have no exposure to Mexico or Canada. So overall immaterial exposure.

Sarah: Q2, Q3 should be fairly consistent.

Sarah: Okay.

Sarah: Okay.

Sarah: Thank you.

Sarah: The current tariff plans.

Sarah: Got it and then just as you think about the cadence of the year.

Brian Nagel: No, that's very helpful. Then, I guess the follow-up question I have, and it's going to be a follow-up to that, but longer term, and I know we've discussed this in the past, but as you look at the business today and again, the guidance you played out there for 2025, what are the building blocks to get FIGS back to that normalized growth algorithm? I mean, what has to happen? I guess within that context of that question is, how much of it is the environment versus levers that you as a management team could pull here?

Sarah: Thank you.

Speaker Change: Our next question go to Lorraine Hutchinson of Bank of America Your.

Sarah: And improving the business are there any meaningful things as you think of the quarterly things, obviously going up against the Olympics advertising from last year, which was more more one more one off how do you think about the cadence of the year anything we should be mindful off thank you.

Speaker Change: Your line is now open.

Speaker Change: Thanks, Good afternoon, I wanted to focus on marketing for a minute as.

Speaker Change: As you lap the Olympics marketing.

Speaker Change: Is the message that you will take those savings and reinvest them or do you expect some rate leverage on that line item.

Sarah: Yeah sure.

Sarah: So the promotional adjustments will be more weighted impact in two H.

Speaker Change: We do expect some rate leverage on that line item.

Speaker Change: But not down to historical levels as we will be reinvesting a portion of those to drive the growth plans for future.

Sarah Oughtred: Great. Yeah. How we're thinking about those building blocks is, first and foremost, the US business is the biggest part of our business, and it has been declining. Our efforts here and the investments that we are making are really about reinvigorating growth in our US business, and that will be really important for the long-term algorithm. I think within that, we've also seen declining growth rates in our active customer base, so it's really important that we reinvigorate growth there as well. Those are two important blocks just in terms of driving the upside ahead of where it has been, along with continuing to build out our retail, international, and teams channel.

Speaker Change: Adjusted EBITDA perspective, Q1 will likely be our lowest Q4 next lowest and then.

Speaker Change: And then can you talk about where some of those incremental marketing investments will be focused.

Speaker Change: Q2, Q3 should be fairly consistent.

Speaker Change: Yes, definitely so we will be investing in.

Speaker Change: Okay.

Speaker Change: Top of funnel.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Drive our brand forward.

Speaker Change: Making some strategic investments across the customer funnel.

Speaker Change: We have opportunity to add more personalization to our digital experience.

Speaker Change: Thank you.

Speaker Change: Our next question goes to Lorraine Hutchinson of Bank of America.

Speaker Change: Your line is now open.

Speaker Change: More localization internationally and it's really about building the team needed to scale, our international teams and community hubs businesses. So.

Speaker Change: Thanks, Good afternoon, I wanted to focus on marketing for a minute.

Speaker Change: As you lap the Olympics marketing.

Speaker Change: It was the message that you will take those savings and reinvest them or do you expect some great leverage on that line item.

Speaker Change: Overall, we need brand marketing and people.

Speaker Change: And we need those two work together faster.

Sarah Oughtred: As that flows through the P&L, it is really going to be that top-line expansion that is really going to help us leverage our bottom-line costs and help us reinvest into the growth for future.

Speaker Change: We do expect some rate leverage on that line item.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Not down to historical levels as we will be reinvesting a portion of those to drive the growth plans for future.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Matt Koranda of Roth capital.

Speaker Change: And then can you talk about where some of those incremental marketing investments will be focused.

Speaker Change: Your line is now open.

Brian Nagel: Got it. Okay, I appreciate it. Thank you very much.

Matt Koranda: Hey, guys good afternoon.

Sarah Oughtred: Thanks.

Speaker Change: Yes, definitely so we will be <unk>.

Matt Koranda: Just spin back to the change in promotional strategies.

Operator: Thank you. Our next question goes to John Kernan of TD Cowen.

Speaker Change: <unk> in Q top of funnel.

Just a question I have is why now like why why do we need to shift away from the prior promotional stance was it hurting the brand, where we're acquiring sort of less desirable customers through those promos that you did and I just wanted to get a sense for also what the new promotional posture could look like it sounds like no sitewide necessarily but will there still be for.

Speaker Change: To drive our brand forward are going to be making some strategic investments across the customer funnel.

John Kernan: Hey, good afternoon. Thanks to take my question. Sarah, how should we think about?

Speaker Change: We have opportunity to add more personalization to our digital experience.

Sarah Oughtred: Thanks, John.

John Kernan: You're welcome. Sarah, how should we think about both selling and G&A? You gave some color earlier in the prepared remarks. Selling obviously has the several hundred basis points of supply chain fulfillment costs in fiscal 2024 in it. How does that unwind, so to speak? Within G&A, what are the drivers of G&A outside of stock-based comp in fiscal 2025?

Speaker Change: Our localization internationally and it's really about building the team needed to scale, our international teams and community hubs businesses. So.

Matt Koranda: Our motions around nurses week and sort of the other typical events.

Matt Koranda: Yeah. So it's really about shifting away from the transactional approach that was needed to reduce our inventory balance more towards strategic promos that celebrate health care professionals and more custom strategies along the funnel.

Speaker Change: Overall, we need brand marketing and people.

Speaker Change: And we need those two work together faster.

Speaker Change: Thank you.

Speaker Change: Okay.

Sarah Oughtred: Yeah, for sure. We had the transitory costs related to our DC transition this year. Those should normalize into next year. That does get partially offset with just our higher fixed costs from operating a much bigger and state-of-the-art facility, as well as our increased mix of international and the impact of that on our selling costs. Still some leverage overall year over year expected, but there are still added costs related to operating this new facility. As we go into G&A, first on marketing, we will have a lower rate of marketing, which is recovery of where we invested into Olympics, but then now reinvesting back into the business to really drive top-line growth.

Speaker Change: Yeah.

Matt Koranda: We've made really good strides in the past two years in working down our inventory position.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Matt Koranda of Roth capital.

Matt Koranda: That did require a certain promo levels to achieve that which.

Speaker Change: Your line is now open.

Matt Koranda: Which we can shift away from now because we are in an improved inventory position.

Matt Koranda: Hey, guys good afternoon.

Matt Koranda: Just spin back to the change in promotional strategies.

Matt Koranda: So we're still going to be having promos that celebrate our health care professionals, but we can pull back in other areas.

Speaker Change: Just a question I have is why now like why.

Speaker Change: Why do we need a shift away from the prior promotional stance was it hurting the brand.

Speaker Change: Are we acquiring sort of less desirable customers through those promos that you did maybe just wanted to get a sense for also what the new promotional posture could look like it sounds like no site wide unnecessarily, but will there still be promotions around nurses week and sort of the other typical events.

Matt Koranda: We are excited that we're seeing great strength in our business as usual days and so we want to continue to support that.

Matt Koranda: And overall it.

Matt Koranda: Really about solidifying our long term brand positioning, which we think is very important.

Speaker Change: Yeah. So it's really about shifting away from the transactional approach that was needed to reduce our inventory balance more towards strategic promos that celebrate health care professionals and more custom strategies along the funnel.

Matt Koranda: Okay that makes sense.

Speaker Change: Just on the overall health care apparel industry I'm curious for 2025, what do you think scrubber demand should look like for the year. Overall I guess you guys had been talking about and others have talked about sort of an extended replacement cycle on scrubbers for the last couple of years.

Sarah Oughtred: Into the other components of G&A, within our total and our people costs, we do have the run rate of investments that we've made from 2024, we'll continue to invest in resources to support the build-out of our teams needed to grow the business, there will be an impact there. I did outline already the stock-based compensation, that will go down by $12 million year over year. Just something to consider is, I'm sorry, it was $13 million year over year that it's going to go down. Something to consider is that while the adjusted EBITDA guidance is flat year over year, because the add backs into the adjustments are lower this year, our EBITDA is actually going to be up year over year.

Speaker Change: We've made really good strides in the past two years in working down our inventory position that did require a certain promo levels to achieve that.

Speaker Change: But it does seem like we should be getting a refresh over the next year or so.

Speaker Change: That should help with some growth so what's embedded in your expectations for the industry overall and for health care.

Speaker Change: Which we can shift away from now because we are in an improved inventory position.

Speaker Change: <unk> sort of behavior.

Speaker Change: So we're still going to be having promos that celebrate our health care professionals, but we can pull back in other areas.

Speaker Change: Yeah. So I mean, the guidance would imply a negative decline in scrub wear but we really feel that is more to do with our promotional cadence. So outside of that we are seeing improvements in our customer trends traffic is up.

Speaker Change: We are excited that we're seeing great strength in our business as usual days and so we want to continue to support that.

Speaker Change: And overall it.

Speaker Change: Really about solidifying our long term brand positioning, which we think is very important.

Speaker Change: Our repeat frequency is up.

Speaker Change: We are seeing great improvement in our lapsed guests coming back and we are driving more business outside of our promotional period. So our customer is very engaged with that with us and we are seeing.

Speaker Change: Okay that makes sense.

Speaker Change: Just on the overall health care apparel industry I'm curious for 2025, what do you think scrubber demand should look like for the year. Overall I guess you guys had been talking about and others have talked about sort of an extended replacement cycle on scrubbers for the last couple of years.

Sarah Oughtred: That is supported by the reduction in stock-based comp with the other factors that I've outlined here.

Speaker Change: Good trends start to happen there.

Speaker Change: And I think I think those are the main pieces there.

John Kernan: Sure. Got it. Just a quick follow-up. It looks like rest of the world and non-scrub wear lifestyle are going to take an increasing portion of the mix as they did in Q4. Just curious, how both the international channel and these non-scrub wear categories, from a profitability standpoint, particularly on the gross margin line, go through.

Speaker Change: But it does seem like we should be getting a refresh over the next year or so.

Speaker Change: That should help with some growth so what's embedded in your expectations for the industry overall and for health care.

Speaker Change: Operator, we'll take the next question please.

Speaker Change: Professionals sort of behavior.

Speaker Change: Yeah. So I mean, the guidance would imply a negative decline in scrub wear but we really feel that is more to do with our promotional cadence. So outside of that we are seeing improvements in our customer trends traffic is up.

Speaker Change: Thank you.

Speaker Change: We'll now be moving onto our next question. Our next question comes from actually Owens of Keybanc capital markets. Your.

Sarah Oughtred: Yeah. For international, though we have been steadily increasing our proportion of international and expect that that will continue into 2025. International is profitable for us. We do have a different cost profile with some added costs, as it relates to duty, shipping, and marketing, but still really happy with the profitability there. In terms of non-scrub wear, about each year, we've been increasing the proportion of that business by about a point, and we would play forward that same expectation as we go into 2025.

Speaker Change: Your line is now open.

Owens: Hi, good afternoon.

Speaker Change: Wanted to start on non scrubbed in the quarter I think you mentioned it came in at 24% of the business in the past I think the highlighted target was to have an 80 20 split longer term is that still the goal here and then within the gross margin guide more I'm more curious, though are you planning the mix to be similar to what we saw in <unk>, what do you see.

Speaker Change: Our repeat frequency is up.

Speaker Change: We are seeing great improvement in our lapsed guests coming back and we are driving more business outside of our promotional periods. So.

Speaker Change: Our customer is very engaged with that with us and we are seeing.

Owens: Mark.

Owens: Yeah. So just some need to keep in mind is that each Q4, we do see that proportion of non scrubber increased.

Speaker Change: Good trends start to happen there.

Speaker Change: And yes, I think I think those are the main pieces there.

Owens: But on the year, we were still 80 20.

Owens: And that proportion has been increasing about a point.

John Kernan: Got it. That's helpful. Thank you.

Sarah Oughtred: Thanks, John.

Speaker Change: Operator, we'll take the next question please.

Owens: Each year. So we would expect that to continue forward, where we will likely see.

Operator: Thank you. Our next question goes to Dana Telsey of Telsey Group. Your line is now open.

Speaker Change: Thank you.

Speaker Change: We will now be moving on to our next question. Our next question comes from actually Owens of Keybanc capital markets. Your line is now open.

Owens: A small increase in the proportion of non scrubber and then that will over index in Q4 of next year as well.

Dana Telsey: Hi, Trina. Hi, Sarah. I hope your homes and everyone's homes are okay in LA and that everyone's all okay.

Owens: Hi, Good afternoon, I wanted to start on non scrubbed in the quarter. I think you mentioned it came in at 24% of the business in the past I think the highlighted target was to have an 80 20 split longer term is that still the goal here and then within the gross margin guide more I'm more curious, though are you planning the mixed.

Speaker Change: And sorry can you just say you had a question on <unk>.

Sarah Oughtred: Thank you.

Dana Telsey: On the product side, Trina Spear, you had mentioned about other categories and the opportunities. As you think about reactivating customers, where are you on that journey? What should 2025 be like in terms of those new product category opportunities, or is 2025 more a year of execution? Just following up on that, any tariffs China, how are you preparing, and is anything in the guidance for tariffs? Thank you.

Owens: You got it yes, okay. So what was your question on gross margin sorry.

Speaker Change: I think that answers it.

Speaker Change: If it shifts longer term just how that factored into the gross margin guide basically for the year, but I think I can piece that together.

Owens: Similar to what we saw in <unk> what are you assuming there.

Speaker Change: So it did have a second one just on the sizing initiatives you talked about I know it was aimed for January 2025, but you highlighted some further calibration needed on the fixed side, you'll be marketing the change in the back half of 'twenty five so from where we were three months ago, maybe just where you identify some of those additional opportunities.

Speaker Change: Yeah. So just some need to keep in mind is that each Q4, we do see that proportion of non scrubber increased.

Owens: But on the year, we were still 80 20.

Trina Spear: Thanks, Dana. I'll start with the product question, then you can take the tariff, Sarah. Dana, we're seeing really great signs of normalization in actually our repeat frequency, and our business as usual days, which is great to see, and that is a function of awesome style and color launches. You saw our Isabel Wide Leg last year, that was incredibly successful. Our scrub legging, which I mentioned. Our Ribbed Waffle underscrubs.

Owens: And that proportion has been increasing about a point.

Speaker Change: That led to your decision to further calibrate the assortment and push out some of that new messaging.

Owens: Each year. So we would expect that to continue forward, where we will likely see.

Speaker Change: Yes, I mean, I think fit it's super important as you know we've talked about it a lot it's a.

Owens: A small increase in the proportion of non scrubber and then that will over index in Q4 of next year as well.

Speaker Change: A really important for health care professionals.

Speaker Change: Of all sizes and it's important to.

Owens: And sorry can you just had a question.

Speaker Change: Look at where we are we've made a lager a lot of progress with our fit effort.

Trina Spear: Our new additions to our underscrub category, those are really taking off. Our float jacket, I don't know if you have our float, Dana, but you should try it out, in the outerwear category, as well as our new 3447 through our partnership with New Balance. We're really focused across the layering system. What are our healthcare professionals wearing to work, at work, from work, on shift, off shift, head to toe? Building out these fabric platforms across category is where we're focused. It's where we really built a lot of foundation in 2024, and there's more to come in terms of building out these platforms in 2025. Very much focused on testing new fabric platforms, testing new products, and then leaning in and doubling down on what's working. That's what you'll continue to see throughout the year.

Owens: You got it yes, okay. So what was your question on gross margin sorry.

Speaker Change: But we really want to ensure that we get it right and so we're taking a bit more time and recalibrating a few pieces of it and so we'll be coming out in the second half of this year with the full transition and related messaging.

Owens: I think that answers it gives this shift shift.

Owens: <unk> longer term, just how that backs into the gross margin guide basically for the year, but I think I can piece that together.

So it did have a second one just on the sizing initiatives you talked about I know it was aimed for January 2025, but you highlighted some further calibration needed on the fit side, you'll be marketing the change in the back half of 'twenty five so from where we were three months ago, maybe just where you identify some of those additional opportunities.

Speaker Change: And despite this timing first we think the extra work is the right move and ultimately.

Speaker Change: We really want to get this right for all of our new and existing health care professionals.

Speaker Change: Appreciate the color. Thanks.

Yeah.

Owens: To your decision to further calibrate the assortment and push out some of that new messaging.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Adrienne <unk> of Barclays.

Owens: Yes, I mean, I think fit it's super important as you know we've talked about it a lot.

Speaker Change: Your line is now open.

Angus Kelleher: Hi, This is Angus kelleher on for Adrian Thanks.

Owens: A really important for health care professionals.

Speaker Change: Thanks for taking our question.

Of all sizes and it's important to.

Speaker Change: I'm going to ask a follow up on Ashley's question and.

Trina Spear: It's all about, obviously, innovation and execution and balancing those two as we go. I'll pass it over to Sarah.

Owens: We look at where we are we've made a lager a lot of progress with our fit effort.

Speaker Change: Ask if you could provide some more details on the non scrubber category are you seeing as opposed to the quick recovery as you pointed out.

Sarah Oughtred: Yeah. On tariffs, we have minimal direct exposure to China on our finished goods. We have some indirect exposure from partners like New Balance that would have exposure to China. We have no exposure to Mexico or Canada. Overall, immaterial exposure to the current tariff plans.

Owens: But we really want to ensure that we get it right and so we're taking a bit more time and recalibrating a few pieces of it and so we'll be coming out in the second half of this year with the full transition and related messaging.

Speaker Change: What drove that.

Speaker Change: If theres any exciting launches planned on that front that you could share in.

Speaker Change: And finally, how are the in stock levels trending.

Speaker Change: Particularly for the footwear category. Thank you.

Owens: And despite this timing first we think the extra work is the right move and ultimately.

Speaker Change: Yeah sure so.

Speaker Change: Q3, we did have the impact from footwear.

Owens: We really want to get this right for all of our new and existing health care professionals.

Speaker Change: But we're performing below our expectations and that was partly related to supply.

Dana Telsey: Got it. Just, Sarah, as you think about the cadence of the year, and improving the business, are there any meaningful things as you think of the quarterly things, obviously going up against the Olympics advertising from last year, which was more one-off, how do you think about the cadence of the year? Anything we should be mindful of? Thank you.

Owens: Appreciate the color. Thanks.

Speaker Change: That was rectified in Q4, and we did the outperformance versus our expectations in the footwear category and that was part of what drove our beat within the quarter as well.

Owens: Yeah.

Owens: Thank you.

Owens: Our next question comes from Adrienne <unk> of Barclays.

Owens: Your line is now open.

Speaker Change: And so as you move into Q4, you have two factors happening as it pertains to non scrubber that we did see the return of footwear in terms of penetration and then we also saw good success with our loungewear.

Owens: Hi, This is Angus kelleher on for Adrian Thanks.

Sarah Oughtred: Yeah, sure. The promotional adjustments will be more a weighted impact in H2. From an adjusted EBITDA perspective, Q1 will likely be our lowest, Q4 next lowest, Q2, Q3 should be fairly consistent.

Thanks for taking our question.

Owens: I'm going to ask a follow up on Ashley's question and.

Owens: Ask if you could provide some more details on the non scrubber categories seeing as opposed to the quick recovery as you pointed out.

Speaker Change: With our waffle and ramped under scrub and outerwear and typically Q4 has a higher penetration of non scrubber. So it will be quite high in Q4 and as we go into 2025 Q1 that will moderate.

Owens: What drove that.

Owens: If there is any exciting launches planned on that front that you could share in.

Owens: And finally, how are the in stock levels trending.

Owens: Particularly for the footwear category. Thank you.

Owens: Yeah sure so.

Dana Telsey: Thank you.

Owens: Q3, we did have the impact from <unk>.

Speaker Change: We expect there to be a proportion just to a slightly higher proportion of non scrubber versus the annual 2024.

Owens: We're performing below our expectations and that was partly related to supply on footwear.

Operator: Thank you. Our next question goes to Lorraine Hutchinson of Bank of America. Your line is now open.

Speaker Change: And.

Owens: That was rectified in Q4, and we did the outperformance versus our expectations in the footwear category and that was part of what drove our beat within the quarter as well.

Speaker Change: In terms of what we were excited about within Ah.

Lorraine Hutchinson: Thanks. Good afternoon. I wanted to focus on marketing for a minute. As you lap the Olympics marketing, was the message that you will take those savings and reinvest them, or do you expect some rate leverage on that line item?

Speaker Change: Were in the quarter and more recently, we have launched.

Speaker Change: The 3447 with zipper.

Owens: And so as you move into Q4, you have two factors happening as it pertains to non scrubber that we did see the return of footwear in terms of its penetration and then we also saw good success with our loungewear.

Speaker Change: And success in the quarter and something that we're excited about going forward along with our continued excitement around our 3447, which is our proprietary design shoe with new balance for health care workers.

Sarah Oughtred: We do expect some rate leverage on that line item, but not down to historical levels as we will be reinvesting a portion of those to drive the growth plans for future.

Owens: With our waffle and rib under scrub and outerwear and typically Q4 has a higher penetration of non scrubber. So it will be quite high in Q4 and as we go into 2025 Q1 that will moderate.

Speaker Change: Great. Thank you I'll pass it along.

Lorraine Hutchinson: Can you talk about where some of those incremental marketing investments will be focused?

Speaker Change: Thank you.

Speaker Change: Our next question comes from Nathan further of Morgan Stanley. Your line is now open.

Sarah Oughtred: Yeah, definitely. We will be investing into top of funnel to drive our brand forward. We're gonna be making some strategic investments across the customer funnel. We have opportunity to add more personalization to our digital experience, more localization internationally, and it's really about building the teams needed to scale our international teams and community hub businesses. Overall, we need brand marketing and people, and we need those to work together faster.

Nathan Furthur: Hey, everyone. Thanks for the question.

Owens: Okay.

Owens: We expect there to be a proportion just to a slightly higher proportion of non scrubber versus the annual 2024.

Nathan Furthur: A little higher level, we've seen some conflicting signals on consumer spend more broadly.

Nathan Furthur: Here, what are you seeing in that whole consumer anything to read into kind of a core strength.

Owens: And.

Owens: In terms of what we were excited about within.

Nathan Furthur: Key differences by income to call out.

Nathan Furthur: As you can hear how that's evolved over the past few months and into <unk>.

Owens: But were in the quarter and more recently, we have launched.

Nathan Furthur: Thank you.

Nathan Furthur: Yes, so our Aoc within the quarter was down 1% that was the lowest decline rate of any quarter with in 2024.

Owens: The 3447 with zipper.

Owens: And success in the quarter and something that we're excited about going forward along with our continued excitement around our 3447, which is our proprietary design shoe with new balance for health care workers.

Nathan Furthur: And our trailing 12 month revenue per customer is also down 1%.

Lorraine Hutchinson: Thank you.

Nathan Furthur: A lot of that is being driven by our U P T.

Operator: Thank you. Our next question goes to Matt Koranda of ROTH Capital Partners. Your line is now open.

Owens: Great. Thank you I'll pass it along.

Nathan Furthur: We are seeing starting to see some more recent favorability in terms of how frequency gets inter played in there.

Owens: Thank you.

Matt Koranda: Hey, guys. Good afternoon. Maybe if we could just spin back to the change in promotional strategy. I guess the question I have is why now? Why do we need a shift away from the prior promotional stance? Was it hurting the brand? Were we acquiring less desirable customers through those promos that you did? Maybe just wanted to get a sense for also what the new promotional posture could look like. It sounds like no site-wides necessarily, but will there still be promotions around Nurse's Week and sort of the other typical events?

Speaker Change: Our next question comes from Nathan further of Morgan Stanley. Your line is now open.

Nathan Furthur: So that is the dynamic frequency isn't going to show up in the average customer base because it's just those existing customers that are buying more frequently.

Nathan: Hey, everyone. Thanks for the question maybe to go a little higher level, we've seen some conflicting signals on consumer spend more broadly you mentioned in here what are you seeing in that whole consumer anything to read into kind of a <unk> strength.

Speaker Change: Yes, I think those are the main points there.

Speaker Change: That's helpful.

Speaker Change: The inventory you mentioned pulling back on par.

Speaker Change: Any differences by income to call out.

Speaker Change: Due to the better inventory positioning.

Nathan: As you see here, how that's evolved over the past few months and into <unk>. Thank.

Speaker Change: Would you characterize are you back to normal inventory levels and if not how far are you in.

Nathan: Thank you.

Nathan: Yes, so our <unk> within the quarter was down 1% that was the lowest decline rate of any quarter with in 2024.

Sarah Oughtred: Yeah. It's really about shifting away from the transactional approach that was needed to reduce our inventory balance, more towards strategic promos that celebrate healthcare professionals and more custom strategies along the funnel. We've made really good strides the past 2 years in working down our inventory position. That did require certain promo levels to achieve that, which we can shift away from now because we are in an improved inventory position. We're still going to be having promos that celebrate our healthcare professionals, but we can pull back in other areas. We are excited that we're seeing great strength in our business as usual days, and so we want to continue to support that. Overall, it's really about solidifying our long-term brand positioning, which we think is very important.

Speaker Change: Short term there now that you're stepping back from.

Speaker Change: Yeah sure you did cut out there so I'm going to go at just giving you some color on inventory and then you can let me know if there was something that I missed but inventory was down 3% year over year and we've been spending the better part of two years to really bring down that inventory position. So we are down.

Nathan: And our trailing 12 month revenue per customer is also down 1%.

Nathan: A lot of that is being driven by our U P T.

Nathan: We are seeing starting to see some more recent favorability in terms of how frequency gets inter played in there.

Speaker Change: 35% from our highs which is great.

Nathan: So that is the dynamic frequency isn't going to show up in the average customer base because it's just those existing customers that are buying more frequently.

Speaker Change: And <unk>.

Speaker Change: Got there really require discipline within our bi is well as you know promotions to exit that inventory.

Nathan: Yes, I think those are the main points there.

Speaker Change: We are at a better level I think there is still pockets of inventory that we can continue to work with.

That's helpful.

Nathan: The inventory you mentioned pulling back on par.

Speaker Change: We are buying with more conviction.

Nathan: Due to the better inventory positioning.

Speaker Change: Buying into our new innovation, including format and continuing to buy into our color that has been really successful.

Nathan: Would you characterize are you back to normal inventory levels, and if not how far you and what's the return there.

Matt Koranda: Okay. That makes sense. Just on the overall healthcare apparel industry, I am curious for 2025, what do you think scrub wear demand should look like for the year, overall? I guess you guys have been talking about, and others have talked about, sort of an extended replacement cycle on scrubs for the last couple of years. It does seem like we should be getting a refresh over the next year or so, that should help with some growth. What is embedded in your expectations just for the industry overall and for healthcare professional sort of behavior?

Nathan: Stepping back from.

Speaker Change: So what we outlined in the script is that we expect the growth rate at inventory to moderately exceed.

Speaker Change: Yeah sure you did cut out there so I'm going to go at just giving you some color on inventory and then you can let me know if there was something that I missed but inventory was down 3% year over year and we've been spending the better part of two years to really bring down that inventory position. So we are down 35%.

Speaker Change: Our revenue expectations.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Thank you.

Speaker Change: There are currently no questions waiting at this time so as a final reminder, it is star one to ask your question.

Speaker Change: <unk> from our highest which is great.

Speaker Change: And <unk>.

Speaker Change: Got there really require disciplined within our bi is fall as promotions to exit that inventory so.

Sarah Oughtred: Yeah. The guidance would imply a negative decline in scrub wear, but we really feel that is more to do with our promotional cadence. Outside of that, we are seeing improvements in our customer trends. Traffic is up, our repeat frequency is up. We are seeing great improvement in our lapsed guests coming back, and we are driving more business outside of our promotional period. Our customer is very engaged with us, and we are seeing good trends start to happen there. Yeah, I think those are the main pieces there.

Speaker Change: We are at a better level I think there are still pockets of inventory that we can continue to work with.

Speaker Change: There seem to be no questions waiting at this time, so I'll pass back over to Trina for any further remarks.

Speaker Change: Thank you I'm, just going to pass it over to Tom Shaw for one point of clarification.

Speaker Change: We are buying with more conviction.

Speaker Change: <unk> into our new innovation, including format and continuing to buy into our color that has been really successful.

Tom Shaw: Thanks, Dana just to clarify a question that Dana had around EBITDA margins.

Tom Shaw: As we indicated our EBITDA margin would be the lowest in the first quarter.

Speaker Change: So what we outlined in the script is that we expect the growth rate at inventory to moderately exceed.

Tom Shaw: You should see a step up in the second and third quarters with the strongest year over year improvement in the third quarter, but the highest EBITDA margin will be planned in the fourth quarter. So just wanted to make sure we clarify that I'll pass back to Trina.

Speaker Change: Our revenue expectations.

Great. Thank you.

Trina: Okay. Thank you so much everybody will see on the next one.

Speaker Change: Yeah.

Speaker Change: Okay.

Tom Shaw: Yes.

Speaker Change: Thank you.

Tom Shaw: Thank you.

Speaker Change: There are currently no questions waiting at this time so as a final reminder, it is star one to ask your question.

Speaker Change: That will conclude today's call. Thank you for your participation you may now disconnect your lines.

Trina Spear: Operator, we will take the next question, please.

Operator: Thank you. We will now be moving on to our next question. Our next question comes from Ashley Owens of KeyBanc Capital Markets. Your line is now open.

Speaker Change: There seemed to be no questions waiting at this time, so I'll pass back over to Trina for any further remarks.

Ashley Owens: Hi, good afternoon. I wanted to start on non-scrubs in the quarter. I think you mentioned it came in at 24% of the business. In the past, I think the highlighted target was to have an 80/20 split longer term. Is that still the goal here? Within the gross margin guide, I'm more curious about, are you planning the mix to be similar to what we saw in Q4, or what are you assuming there?

Speaker Change: Thank you I'm, just going to pass it over to Tom Shaw for one point of clarification.

Speaker Change: Just to clarify a question that Dana had around EBITDA margins.

Speaker Change: As we indicated our EBITDA margin would be the lowest in the first quarter.

Speaker Change: Should see a step up in the second and third quarters with the strongest year over year improvement in the third quarter, but the highest EBITDA margin will be planned in the fourth quarter. So just want to make sure we clarify that I will pass it back to Trina.

Sarah Oughtred: Yeah. Just something to keep in mind is that each Q4, we do see that proportion of non-scrub wear increase. On the year, we were still 80/20. That proportion has been increasing about a point each year. We would expect that to continue forward, where we will likely see a small increase in the proportion of non-scrub wear, and then that will over-index in Q4 of next year as well. Sorry, you had a question on? Oh, you got it. Yeah. Okay. What was your question on gross margin? Sorry.

Trina: Okay. Thank you so much everybody will see on the next one.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: That will conclude today's call. Thank you for your participation you may now disconnect your lines.

Ashley Owens: I think that answers it.

Sarah Oughtred: Okay

Ashley Owens: split shift longer term, just how that backs into the gross margin guide basically for the year. I think I can piece that together. I did have a second one just on the sizing initiatives you talked about. I know it was aimed for January 2025, but you highlighted some further calibration needed on the fit side. You'll be marketing the change in H2 2025. From where we were three months ago, maybe just where you identified some of those additional opportunities that led to your decision to further calibrate the assortment and push out some of that new messaging?

Trina Spear: Yeah, I think fit is super important. As you know, we've talked about it a lot. It's really important for our healthcare professionals of all sizes, and it's important to look at where we are. We've made a lot of progress with our fit effort, but we really want to ensure that we get it right. We're taking a bit more time and recalibrating a few pieces of it. We'll be coming out in H2 2024, with the full transition and related messaging. Despite this timing push, we think the extra work is the right move. Ultimately, we really want to get this right for all of our new and existing healthcare professionals.

Ashley Owens: Appreciate the color. Thanks.

Operator: Thank you. Our next question comes from Adrienne Yih of Barclays. Your line is now open.

Angus Kelleher-Ferguson: Hi, this is Angus Kelleher-Ferguson on for Adrienne Yih. Thanks for taking our question. I'm going to ask a follow-up on Ashley Owens's question and ask if you could provide some more details on the non-scrub wear category, seeing as it posted a quick recovery, as you pointed out. Just what drove that, and if there's any exciting launches planned on that front that you could share. Finally, how are the in-stock levels trending, particularly for the footwear category? Thank you.

Sarah Oughtred: Yeah, sure. In Q3, we did have the impact from footwear performing below our expectations, and that was partly related to supply on footwear. That was rectified in Q4, and we did see outperformance versus our expectations, in the footwear category. That was part of what drove our beat within the quarter as well. As you move into Q4, you have two factors happening as it pertains to non-scrub wear. We did see the return of footwear in terms of its penetration. We also saw good success with our loungewear, with our waffle and ribbed underscrubs and outerwear. Typically, Q4 has a higher penetration of non-scrub wear. It will be quite high in Q4. As we go into 2025 Q1, that will moderate.

Sarah Oughtred: Overall, we expect there to be a proportion shift to a slightly higher proportion of non-scrub wear versus the annual of 2024. In terms of what we were excited about within footwear in the quarter, and more recently, we have launched the 3447 with the zipper. That saw good success in the quarter and something that we're excited about going forward, along with our continued excitement around our 3447, our proprietary designed shoe with New Balance for healthcare workers.

Angus Kelleher-Ferguson: Great. Thank you. I'll pass it along.

Operator: Thank you. Our next question comes from Nathan Feather of Morgan Stanley. Your line is now open.

Nathan Feather: Hey, everyone. Thanks for the question. Maybe to go a little higher level, we've seen some conflicting signals on consumer spend more broadly. Interested to hear, what are you seeing in the healthy consumer? Anything to read into the Q4 strength there and any key differences by income to call out? Interested to hear how that's evolved over the past few months and into Q1. Thank you.

Sarah Oughtred: Yeah. Our AOV within the quarter was down 1%. That was the lowest decline rate of any quarter within 2024. Our trailing 12-month revenue per customer is also down 1%. A lot of that is being driven by our UPT, but we are starting to see some more recent favorability in terms of how frequency gets interplayed in there. That is a dynamic. Frequency isn't going to show up in the average customer base because it's just those existing customers that are buying more frequently. Yeah, I think those are the main points there.

Nathan Feather: That's helpful. On the inventory, you mentioned pulling back on promotions partially due to the better inventory position. Are you back to normal inventory levels? If not, how far are you and what's the path to return there now that you're stepping back from promotions a little bit?

Sarah Oughtred: Yeah, sure. You did cut out there, so I'm going to go with just giving you some color on inventory, and then you can let me know if there was something that I missed. Our inventory was down 3% year over year, and we've been spending the better part of 2 years to really bring down that inventory position. We are down 35% from our highs, which is great. To get there really require discipline within our buys as well as promotions to exit that inventory. We are at a better level. I think there's still pockets of inventory that we can continue to work with, but we are buying with more conviction, buying into our new innovation, including FORMx and continuing to buy into our color that has been really successful.

Sarah Oughtred: What we outlined in the script is that we expect the growth rate of inventory to moderately exceed our revenue expectations.

Nathan Feather: Great. That is it. Thank you.

Operator: Thank you. There are currently no questions waiting at this time. There seem to be no questions waiting at this time. I'll pass it back over to Trina for any further remarks.

Trina Spear: Thank you. I'm just going to pass it over to Tom Shaw for one point of clarification.

Tom Shaw: Thanks, Trina. Just to clarify a question that Dana had around EBITDA margins throughout the year. As we indicated, our EBITDA margin would be the lowest in Q1. You should see it step up in Q2 and Q3 with the strongest year-over-year improvement in Q3, but the highest EBITDA margin will be planned in Q4. Just want to make sure we clarify that. I'll pass it back to Trina.

Trina Spear: Okay. Thank you so much, everybody. We'll see you on the next one.

Operator: Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your line.