Q3 2025 Figs Inc Earnings Call
Speaker #1: Good afternoon . Thank you for attending the third quarter fiscal 2025 earnings conference call . My name is Matt , and I'll be the moderator for today's call .
Speaker #1: All lines be muted during the presentation portion of the call from opportunity for Questions and answers at the end . If you would like to ask a question , please press star one on your telephone keypad .
Speaker #1: I'll have to pass the conference over to our host , Thomas Shaw Senior Vice President of Investor Relations . Tom , please go ahead .
Speaker #2: Good afternoon , and thank you for joining us to discuss third quarter 2020 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 at .
Speaker #2: Presenting on today's call . Our Trina Spear , our co-founder and Chief Executive Officer . And Sarah Altrad , our chief Financial Officer .
Speaker #2: 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 financial performance , market opportunity or business plans .
Speaker #2: 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 10-Q we filed today.
Speaker #2: Do not place undue reliance on forward looking statements , which speak only as of today , in which we undertake no obligation to update .
Speaker #2: Finally , we will discuss certain non-GAAP metrics and key performance indicators , which we believe are useful supplemental measures for understanding our business .
Speaker #2: Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are about future shareholder presentation we issue today . And now I'd like to turn the call over to Trina .
Speaker #3: Thanks , Tom , and good afternoon , everyone . Our third quarter results are built on the momentum generated during the first half of the year , delivering our highest quarterly year over year revenue growth over the past two years , supported by strong performance across the board .
Speaker #3: Net revenues were up 8% for the quarter , well ahead of our plan . Importantly , this success was pronounced across the core parts of our business scrub , where the US and our business as usual selling days .
Speaker #3: At the same time , we drove the core while executing our plan to pull back on promotions . We believe these positive trends within our foundation are a great sign of our brand health and support .
Speaker #3: The sustainable growth story we see ahead . We also executed well across the PNL in Q3 . Gross margin remained healthy , approaching 70% despite the growing impact of tariff headwinds .
Speaker #3: Substantial SG&A leverage reflected both the lapping of outsized expenses last year , but more importantly , the success of our ongoing efficiency and tariff mitigation efforts .
Speaker #3: Overall , this execution supported an impressive 900 basis point improvement in our adjusted EBITDA margin to 12.4% for the period . As we look ahead , we are seeing this positive momentum carry over to the start of Q4 and we are meaningfully increasing our outlook as a result .
Speaker #3: We now expect Q4 to be our strongest net revenue growth of the year , driving our full year estimate to approximately 7% growth .
Speaker #3: We also have increased our adjusted EBITDA margin expectation above the high end of our original outlook , and back to low double digit levels .
Speaker #3: This reflects the great progress we have made during the year, despite the onset of tariff headwinds. Overall, we are executing exceptionally well against our expectations in driving better consistency, and I'm so proud of our team's collective effort as we look to deliver to all of our stakeholders.
Speaker #3: Most importantly , our health care professionals . Reflecting on our year to date results , we have seen an outstanding response to our brand and wanted to spend some time on this call .
Speaker #3: Walking through some of the dynamics we see contributing to our top line outperformance . At the highest level , it really comes down to our success in delivering a great product assortment and impactful connections , starting with our product strategy .
Speaker #3: We These include improved function and fit , expanded head to toe solutions , strategic inventory investments , and stronger calendar alignment . We recognize the importance of function and fit .
Speaker #3: are excited about the direction we are headed in and how we are more effectively delivering our portfolio to healthcare professionals . We see for interrelated areas of focus that are both paying dividends today and setting us up for success in the future .
Speaker #3: These are already hallmarks of our brand , but areas to continually improve in to address the evolving needs of healthcare professionals from a functional standpoint , we are delivering impactful and relevant new silhouettes which are resonating with new and existing customers .
Speaker #3: This focus has been key in driving our core , while also demonstrating success in elevating our assortment function . Also informs fabric leadership , where our category defining fabrication remains the centerpiece of our brand .
Speaker #3: However , we know that there are opportunities to address the full range of activities that healthcare professionals go through every day . Our form fabrication debuted in Q1 for environments where comfort and stretch are paramount , and we have seen momentum build as we have methodically expanded offerings throughout the year .
Speaker #3: We also just announced our next fabric solution , fiber X , which is set to debut in Milan at the 2026 Winter Olympics .
Speaker #3: Lightweight yet structured , soft yet durable , this fabric is designed to work in environments like for those supporting our Olympic athletes , we're durability is particularly important .
Speaker #3: Looking at our Fit initiative , our efforts are already paying off with lower returns , fewer inbound comments to our customer experience team and improved customer trust with our obsession with function and fit coming together .
Speaker #3: We are also excited with how our enhanced product design work will elevate the entire product portfolio in 2026 and beyond . Continuing to build this strength in our core opens the aperture for outfitting healthcare professionals from head to toe .
Speaker #3: For example , our recently introduced Arctic Compression socks demonstrate our latest commitment to . Category leadership as the first ever patented medical grade compression socks in the market across additional areas such as outerwear under scrubs and footwear .
Speaker #3: Our team has developed a roadmap of how we plan to prioritize and build out these opportunities in the years ahead with confidence in great product .
Speaker #3: We are investing appropriately . Coming off recent periods of more conservative buying plans , we have made more informed and deeper inventory investments across certain styles and colors .
Speaker #3: This action has contributed to a better flow of newness to our healthcare professionals , while also supporting better overall in-stock levels . Finally , this all ties directly to our enhanced merchandising work around calendar alignment .
Speaker #3: We have added more rigor to how and when we deliver our products and messaging efforts that have not only enhanced productivity across launch moments , but also our ability to leverage those moments in driving demand back to the core .
Speaker #3: This work has added importance as we reset our promotional cadence this year , and as we execute against a repeatable , scalable framework for consistently delivering great product .
Speaker #3: As excited as we are with our product direction , our impact would not be what it is without our unique ability to serve our community and build connections in ways that only figs can .
Speaker #3: We are seeing the payoff of our amazing top of funnel moments that started with some of last year's big brand splashes and have continued throughout 2025 .
Speaker #3: Looking at some of our recent successes . Let's start with what was a unique opportunity heading into this year's Emmy Awards . Last call , we detailed our advocacy work in Washington , D.C.
Speaker #3: with actor Noah Wylie , work which went viral across our community . When Noah was then nominated for Best Actor for The Pit , he challenged us to make a tuxedo for the Emmys .
Speaker #3: That was as comfortable as the scrubs he wears on set . We stepped up to the challenge by creating a first of its kind tuxedo with subtle details and craftsmanship .
Speaker #3: We were proud to support Noah's desire to bring the healthcare community directly to the red carpet . As the night progressed and momentum built , we strategically aired our where Do You Wear fig spot ?
Speaker #3: During the last commercial segment before the awards for Best Actor and Best Drama were announced . This was executed perfectly as Noah and the pit went on to win both of those awards .
Speaker #3: Coming out of the break on stage , Noah eloquently dedicated his award to anybody who's coming on shift tonight or anyone who's coming off shift tonight .
Speaker #3: This overall moment became among the most viral in our history , with multiple best nods for Noah and 175 total placements across traditional media and social , including over 30 top tier press articles across fashion , entertainment and lifestyle outlets .
Speaker #3: Most importantly , our actions led to healthcare professionals are awesome . Humans to feel seen in a way they rarely do on the world's biggest stage .
Speaker #3: Our brand work was just getting started as we continued our year celebration of where do you wear figs ? Following the Emmys , we debuted our global installment of the campaign , filmed across Tokyo , London , Mexico City and Los Angeles , showing how medicine is a universal language .
Speaker #3: We were excited to be able to amplify our message in key countries with upper funnel support . It is also important to highlight our work supporting breast cancer awareness .
Speaker #3: It's easy to highlight the commercial success of the campaign with our F-ing Pink and Fight Club Pink color launches . Being one of our top performing color drops in our history , but the more important part , the harder part was showing the inspirational work of healthcare professionals , including Doctor Elizabeth Potter .
Speaker #3: A breast long reconstruction surgeon from Austin , Texas . The success of our campaign underscored how much he resonates and is at the forefront of industry conversations in the medical community .
Speaker #3: It also reinforced the type of impact that we aspire to with Doctor Potter proclaiming , you guys listen . We feel represented and you care about what we're going through .
Speaker #3: The success of these campaigns are further proof points of how we strike a deep emotional cord with healthcare professionals through the stories we tell .
Speaker #3: This has always been part of the secret sauce of figs , but since our Olympics campaign in 2024 , we've been on a run of our best top of funnel campaigns ever .
Speaker #3: And determined not to slow down . Not only are our campaigns resonating in unprecedented ways for the brand , we are also matching this work with added sophistication in our measurement , performance , marketing tools are giving us added insight into when to lean into brand moments and how to optimize our messaging .
Speaker #3: And importantly , we still have considerable opportunities ahead as we think about leveraging unique views of healthcare professionals to better personalize their experiences .
Speaker #3: Finally , it's important to highlight that our great execution is bolstered even further by an industry backdrop that is returning to its pillars of fundamental strength that most other apparel industries we're dream of .
Speaker #3: This includes the replenishment driven largely non-discretionary and seasonless nature of our scrub , where that healthcare professionals return to over and over again .
Speaker #3: It also involves a massive industry that is among the fastest growing for any sector , with over 23 million US and over 100 million international healthcare professionals .
Speaker #3: To put it simply , we are serving a strong industry with professionals that need uniforms to do their jobs . Raising the bar further in these foundational areas also helps fuel our efforts across our three emerging growth drivers , international teams and community hubs .
Speaker #3: We are making important investments across all three of these opportunities . In 2025 , and each is expected to scale in importance in the years ahead , starting with international .
Speaker #3: Our expansion is a significant focus and one where we have a number of recent developments . With over 80% of global healthcare professionals located outside of the US and driving less than 20% of our revenues .
Speaker #3: International remains a massive opportunity . We are rapidly expanding our footprint this year , jumping from 33 countries to nearly 60 planned international markets by the end of this year , and we are driving this expansion in a disciplined way through two strategies .
Speaker #3: These go broad or go deep . To go broad , we are focusing on low touch ways to open markets , leveraging technology and regional commonalities to efficiently expand following 12 new Latin American markets .
Speaker #3: We announced last quarter , we are on the cusp of opening 11 new markets across the Middle East and Africa region . We know that healthcare professionals globally have the same awful experience as you used to have domestically , and this strategy is an easy way to begin to reshape expectations in many smaller markets , while also informing potential future investments with our go deep strategy , we're focusing on markets with more clearly defined opportunities and taking additional steps to more directly invest for some of our more established markets like Canada , UK and Mexico .
Speaker #3: Investments extend to infrastructure as we look to localize and scale . This includes adding in-market talent , brand marketing to drive awareness and logistics to drive more efficient operations and support profitable growth .
Speaker #3: This strategy also informs our approach to several new markets , including the launch of Japan and Q2 . This market is trending well to date and providing great early learnings with how to serve locally .
Speaker #3: We also took the same level of care as we opened South Korea and October , and we are excited to announce today that we plan to debut in China through Tmall later this quarter .
Speaker #3: While near-term contributions of these three new markets are expected to be modest , we see the opportunity for each to be significant drivers of our long term international growth story .
Speaker #3: We are also actively investing in our teams and community hub opportunities , solidifying each of their own foundations for meaningful growth going forward .
Speaker #3: With teams , we want to both capture the legacy demand for institutional led buying and also influence behavior with great solutions to this mix .
Speaker #3: Even higher to power these efforts , we have added talent to both nurture our great drive existing partnerships and also to better cultivate new ones .
Speaker #3: We also have focused on unlocking seamless and customizable solutions for a wider range of institutions , and are excited to begin deploying updated technology this quarter .
Speaker #3: With community hubs , we are excited to debut three new stores this quarter , starting with New York's Upper East Side , Plan next week and then followed by planned openings in Houston and Chicago .
Speaker #3: Each of these locations will apply key learnings from our first two stores and apply updated design and merchandising elements to enhance the overall experience .
Speaker #3: We continue to see the value of having a physical presence for the brand , particularly with nearly 40% of customers coming in new to the brand .
Speaker #3: We remain confident in our disciplined approach and are well positioned to accelerate our cadence of openings in 2026 , before turning the call over to Sarah , I would like to reiterate how excited we are with our progress as we have highlighted the foundational pieces of our business , are strengthening our community .
Speaker #3: Engagement has never been more impactful , and we see significant opportunities to sustain momentum in 2026 and beyond . Importantly , we will never lose our unyielding focus in support of the healthcare community .
Speaker #3: This is an intangible thing to measure , but one that defines our brand's leadership . Caring , connection and authenticity . This is our non-negotiable .
Speaker #3: It's how we drive relevance and staying power at the same time , we're applying more discipline , talent , and rigor across all the other factors that drive our business .
Speaker #3: We are positioned well to continue our momentum and amplify the brand over the long term . With that , I'll pass it over to Sarah .
Speaker #3: Thanks , Trina . Our year to date performance highlights the growing potential of the fig . story as we more closely align our product strategy with our unique ability to drive impact for healthcare professionals .
Speaker #3: We are particularly encouraged to drive this high level of execution in a year where we had both a planned headwind with our promotional repositioning as well as an unplanned headwind with tariffs .
Speaker #3: And as I'll discuss , we are excited to see the progress reflected in our .
Speaker #4: Full year , top and bottom line expectations that have moved markedly higher the past two quarters . But first , let me start with details of our strong third quarter performance .
Speaker #4: Net revenues increased 8% year over year to $151.7 million , ahead of our outlook of flat to up 2% . As Trina highlighted , our performance was underscored by both scrub , where growth and US growth , each reaching two year highs , as well as the extremely encouraging strength and momentum across our business as usual , selling period .
Speaker #4: These indicators continue to support our successful ability in resetting our promotional strategy this year , particularly with more aggressive action planned across the back half of the year .
Speaker #4: From a measurement standpoint , average order value increased 6% to $114 , primarily driven by higher average unit retail due to product mix and a higher rate of full price sales .
Speaker #4: Active customer growth has remained consistent throughout the year of plus 4% , pushing our active customer count to a company record of nearly 2.8 million .
Speaker #4: This growth comes despite our promotional reset , and we have seen momentum in our acquisition trends and sustained success in bringing lapsed customers back to the brand .
Speaker #4: We were also pleased to see our trailing 12 month measure for net revenues per active customer inflect positive for the first time in three years , with 2% growth in the period to $209 .
Speaker #4: I category scrubber grew 8% , representing 84% of net revenues for the period . Results were ahead of plan , with strength in our core products supported by impactful color stories , strategic positioning and key styles , and effective merchandising and marketing .
Speaker #4: Color launches and cadences were successful in not only driving excitement to new offerings , but also energized our core colors . Looser fitting silhouettes are increasingly resonating , particularly in bottoms , and we are leading and investing in these areas and complimenting our great assortment .
Speaker #4: We continue to drive cohesion with how and when we deliver and message to our customers , which is driving productivity . Non scrubber increased 7% , representing 16% of net revenues .
Speaker #4: We saw strong growth in scrubs which included new three quarter length versions of our popular Salta and Mercado styles . And we're inspired by customer feedback .
Speaker #4: Shoes rebounded from some of the executional challenges in last year's period and were supported by strong coordination with our color stories , and we were excited to launch our Arctic socks at the end of the quarter , which we believe will be a great core offering to address healthcare professional needs going forward .
Speaker #4: Notably , results also reflect the comping of some Olympics driven newness in areas like outerwear and bags . But we remain excited with the pipeline of product in these key areas going forward .
Speaker #4: By geography, U.S. sales increased 8% to $127.3 million. This was our strongest performance over the past nine quarters and continued to reflect balanced growth across both new and repeat customers.
Speaker #4: International net revenues increased 12% , led by particular strength in driving new customers . Headline growth was solid , but had some nuances that understated our overall strength in particular , we had a more significant reduction in promo days relative to the US , which had an outsized impact on Canada and Australia .
Speaker #4: Two of our larger markets . Nonetheless , we are excited as we look at our overall performance , including active customers of strong double digits , AOV up in all regions and ahead of the consolidated growth and fantastic business as usual growth .
Speaker #4: Gross margin for Q3 expanded 280 basis points to 69.9% . Key contributors to this year over year performance included lower discounts from the reduction in promotional days , improved return rates and processing , lower duties , and reduced freight costs .
Speaker #4: These tailwinds were partially offset by higher tariffs . Results were significantly better than planned , driving our best quarterly performance since early 2023 , with broad based upside including conservative sell through assumptions of the mix of non-tariff goods and through our improved returns , processing work .
Speaker #4: Our selling expense for Q3 was $35.8 million , representing 23.6% of net revenues , compared to 27.5% last year . As a reminder , last year's third quarter included the majority of transition costs associated with the opening of our Arizona fulfillment center .
Speaker #4: In addition to lapping these costs , we drove continuous improvement here as we further optimize our business . We also saw improvements in shipping given our successful actions to optimize our carrier mix , improve pricing , and drive strong service levels .
Speaker #4: Marketing expense for Q3 was $23.5 million , representing 15.5% of net revenues , down from 20.3% last year . The reduction in the spending rate primarily reflected lapping last year's strategic investment to outfit the team .
Speaker #4: USA medical team at the Olympic Games and efficiency in marketing spend DNA for Q3 was $37.1 million , representing 24.5% of net revenues , compared to 25.3% last year .
Speaker #4: Consistent with prior quarters , the lower G&A expense rate was primarily due to a meaningful reduction in stock based compensation expense , partially offset by higher people costs .
Speaker #4: In total , our adjusted EBITDA for Q3 was $18.9 million , with an adjusted EBITDA margin of 12.4% compared to 3.4% last year .
Speaker #4: Net income for the quarter was $8.7 million , or diluted EPs of $0.05 , compared to net loss of $1.7 million last year , or diluted loss per share of $0.01 on our balance sheet .
Speaker #4: We finished the third quarter with a net cash . Cash equivalents and short term investment position of $241.5 million . Inventory increased 23% year over year to $151.2 million , or up 20% on a unit basis .
Speaker #4: We finished the third quarter with a net cash . Cash equivalents and short term investment position of $241.5 million . Inventory increased 23% year over year to $151.2 million , or up 20% on a strong Several factors are impacting the build up of inventory as indicated .
Speaker #4: Last quarter . It starts with our action to support both product introductions and deeper investments in key styles , which we believe has helped drive some of the upside opportunity during the back half of the year .
Speaker #4: We also saw a higher than planned level of In-transit inventory , reflecting earlier timing given some of the process improvement we have been working to drive across the supply chain .
Speaker #4: While the gap between unit growth and dollar growth was modest during the quarter, we expect the growing impact of tariffs will contribute to a wider spread in Q4.
Speaker #4: On the capital allocation side , we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program .
Speaker #4: Capital expenditures for the quarter were $2.9 million , primarily related to our three new community hubs , and we now expect approximately $7 million for the full year .
Speaker #4: Now , turning to our updated outlook to close out the year . Full year 2020 net revenues are now expected to grow approximately 7% year over year , ahead of our prior outlook of up low single digits on top of our strong Q3 results , we see several factors supporting even better implied growth in Q4 .
Speaker #4: To start , we had fantastic momentum coming out of the third quarter , starting with our hugely successful breast cancer awareness campaign and extending into our business as usual , selling days .
Speaker #4: As I also mentioned , we are investing more strategically in our inventory position to ensure better availability of key products and styles . This also drives what we expect to be our best balance of new colors and styles .
Speaker #4: Offered year to date , which is also proving effective at supporting the core business . We are excited to continue to launch this newness with the same discipline that is supported or strong productivity .
Speaker #4: This year . Finally , we will complete our year long promotional reset this quarter , though do not expect the corresponding revenue drag to be as meaningful as Q3 .
Speaker #4: Looking at gross margins , our full year 2025 outlook has improved from our prior call , and now expect only a modest year over year decline from last year's level of 67.6% , a large part of this sequential improvement comes from the Q3 upside that we do now expect less overall drag in Q4 as well as a reminder , we face two sizable headwinds in Q4 .
Speaker #4: First , we expect ramping sequential tariff pressure as more impacted goods average into our product costs . We continue to assume added tariffs of 20% in Vietnam and 15% in Jordan , which combined drive nearly all of our production .
Speaker #4: And second , we are also lapping a sizable one time benefit from duty drawback claims in the year ago period . However , similar to Q3 , we have several items that are helping offset these pressures , including lower discounts , improvements in our returns , processing and freight .
Speaker #4: Additionally , we are starting to get better scale on certain styles in conjunction with demand . The full year SG&A story continues to show strong leverage following last year's outsized investments .
Speaker #4: While Q4 is still expected to show some expense rate deleverage , the magnitude has been reduced primarily by the impact of our improved top line assumptions across each of our expense buckets .
Speaker #4: More specifically , this quarter selling expenses should continue to benefit from our scaling efforts and tariff mitigation strategies . The marketing expense rate is planned to meaningfully increase , reflecting both lower spend rate from the prior year , as well as our ramping support for the forthcoming 2026 Winter Olympics and the rate will continue to reflect lower year over year stock based comp , partially offset by higher planned people costs .
Speaker #4: Overall , we are updating our full year adjusted EBITDA margin to approximately 10.3% compared to the prior range of 8.5% to 9% and ahead of the original outlook of 9% to 9.5% .
Speaker #4: We also want to provide several high level comments that pertain to our early 2026 planning . First , on net revenues , we are committed to growing the business in 2026 , which should continue to be supported by strong current momentum and ongoing process improvements .
Speaker #4: Additionally , we expect the investments we have made in our three emerging growth drivers , international teams and community hubs will begin to have more material impact .
Speaker #4: While not all of these factors will have linear contributions , we are excited to further unlock these businesses given our strengthening core . Next , on tariff mitigation .
Speaker #4: As we have discussed , we have a number of levers across both product costs and SG&A that we have already pulled and some that remain in consideration .
Speaker #4: We have already seen strong execution as we optimize costs across inbound and outbound shipping and at our fulfillment center . Benefits that we plan to extend into 2026 .
Speaker #4: Our supplier negotiations have been productive and are expected to yield additional savings next year . And while we do not plan to take any pricing action in 2025 , it remains a lever for next year .
Speaker #4: And finally , on margins , the bar for 2025 adjusted EBITDA margins has been raised despite an estimated unmitigated tariff drag of approximately 110 basis points .
Speaker #4: However , with an estimated annualized unmitigated impact of closer to 440 basis points , we expect that the majority of tariff headwinds is still ahead of us in 2026 , as such , we will use our ongoing planning process to continue monitoring the overall environment while also balancing our ongoing discipline .
Speaker #4: The full range of tariff mitigation , as well as strategic investment levels . While it is too early to provide specifics , we do think it is important to note that we see opportunity for 2026 adjusted EBITDA margins to be within range of current 2025 expectations .
Speaker #4: Overall , we are energized to be in such an incredible industry where serving healthcare professionals is paramount and with improving profitability and ample balance sheet flexibility , we believe we are positioned to remain on offense and drive sustainable long term growth .
Speaker #4: Story . We see ahead . I will now turn the call back over to the operator for Q&A . Operator .
Speaker #1: would like to ask a If you question , please press star followed by one on your telephone keypad . If for any reason you would like to remove that question , please press star followed by two again to ask a question , press star one .
Speaker #1: As a reminder , if you are using a speakerphone , please remember to pick up your handset before asking your question . We will pause here briefly as questions are registered .
Speaker #1: First question is from the line of Bob treble with Btig . Open .
Speaker #5: Hi . Good afternoon and nice quarter .
Speaker #3: Thank you Bob .
Speaker #5: Just got a couple . Welcome . A couple questions for you . Just on on the gross margin performance this quarter . I guess when you look at it a little bit longer term , you know , in the next year .
Speaker #5: But I would even say , you know , when you look at your historical results , given your ability to sort of navigate a lot of the tariffs , can you just talk us through how you envision that segment ?
Speaker #5: You know , that line item or the business over the next several years ? I guess at this point .
Speaker #6: Hi , Bob . Yeah . So we saw a really great gross margin for this quarter up to 69.9% . Obviously , that's been quite higher than where that rate has been .
Speaker #6: We did see some components .
Speaker #4: There , some that will continue into the future , but some that are unique to the quarter . So , you know , we are seeing improved discount rates from the pullback in our promo strategy .
Speaker #4: And we'll see that continue into Q4 as being a benefit year over year . But you know , longer term that , you know , increase year over year will moderate as that promo strategy normalizes into next year .
Speaker #4: We've been working hard with our new returns partner and seeing some good improvement in our refurbishments , refurbishment rates . And then there was a bit of nuance in how some returns processing happened with the prior year .
Speaker #4: DC transition . So we do expect some of those improvements in refurbishment rates to continue going forward , but not at the same rate that we saw in the quarter .
Speaker #4: And , you know , we've been really working hard to optimize our inbound rates . And we saw the benefit of that . This quarter .
Speaker #4: And that should continue into next year until we annualize that , you know , obviously tariffs are the biggest piece . And so that will have a 440 bit total impact next year or up 330 Bips .
Speaker #4: And you know , there's still some you know , unknowns around how tariffs will remain . So we'll continue to monitor that . But feeling good with our measures of how we're able to continue to find a efficiencies within margin and carry that into future to continue to work on offsetting those tariffs .
Speaker #5: Great . Thank you very much . Good luck .
Speaker #1: Thank you for your question . Next question is from the line of Rick Patel with Raymond James . Your that open .
Speaker #7: Hey good afternoon and congrats on the strong execution . Can you expand on on demand that you saw during the the business as usual days when you didn't offer promotions ?
Speaker #7: How was Q3 performance on those days relative to where it was in the first half ? And second , given tariffs are intensifying and demand is holding up well ?
Speaker #7: What do you need to see to revisit the pricing lever for next year ?
Speaker #4: Great . So in terms of our business as usual days , we've seen acceleration each quarter in those business as usual days . So really great to see that .
Speaker #4: And it's really from the broad base performance that we're seeing across both the US and international , as well as both scrub wear and non scrub wear .
Speaker #4: So really happy with that performance . And it's really that acceleration that has , you know had revenue growth rates overall accelerate each quarter .
Speaker #4: So really happy with with what we're seeing there . And then you know I think you asked on pricing . And so you know our our pricing remains consistent with what we've shared previously .
Speaker #4: You know several considerations that we've shared before that still remain , which is healthcare professionals need our products to do the critical work that do .
Speaker #4: Nearly two thirds of our customers make under $100,000 a year , and we have 16 core sales that generate the majority of our revenue .
Speaker #4: So our ability to simply flow through higher prices into new seasons or new styles is limited . We want to be prudent . And there is still some open endedness on where tariffs will land .
Speaker #4: We've been working really hard on our tariff mitigation they , you know , include optimizing our supplier base , negotiating discounts with our suppliers and driving efficiency in inbound and outbound .
Speaker #4: So the great news is that we've seen strong progress on these measures , measures to date . We're not going to be taking pricing in 2025 .
Speaker #4: And if we were to take any future pricing that decision . Would be held to share with our healthcare professionals . First so that we can control the narrative and deliver with the care that our healthcare professionals deserve .
Speaker #7: Thanks very much .
Speaker #1: Thank you for your question . Next question is from the line of Brooke Roach with Goldman Sachs . Your lines now open . .
Speaker #8: Afternoon . And thank you for taking the question . Trina . Sarah , I was hoping we could discuss the trends that you're seeing in AOV .
Speaker #8: Understood that some of this is coming from the promo reset , but how are you thinking about the opportunity for AOV to contribute to revenue growth as you look ahead into 2026 ?
Speaker #8: Similarly , can you talk a little bit about the customer trends that you're seeing ? Are your customers engaging more frequently ? Are they staying for longer ?
Speaker #8: Are you seeing better reactivation trends or better new acquisition trends ? And are you seeing any trends specifically within any age or income cohorts , given the broader macro environment ?
Speaker #8: Thank you .
Speaker #4: Great . I'll start with the question on AOV . So , you know , in terms of AOB , we've been seeing that increase each quarter and saw a fairly large increase in the current quarter , up 6% .
Speaker #4: That is driven from both mix shift in our product as well as the pullback in our promotional efforts . And so , you know , I think as we think about 2026 , we still think there is some opportunity for AOV to continue to increase .
Speaker #4: And that's largely with how we're thinking about product mix and continuing to build out that full assortment head to toe for that healthcare professional and contribute, continue to drive into higher wallet share that we know is available to us.
Speaker #3: And I'll just add , in terms of the trends we're seeing in our consumer , Brooke , as you know , we don't you know , we serve a different consumer than the average apparel or even e-commerce company .
Speaker #3: Our customer works in an industry that has a real level of stability . People need health care workers . They're not going anywhere .
Speaker #3: And if anything , our industry is really accelerating . It's the health care jobs are the fastest growing job segments . They're growing three times faster than the overall job market .
Speaker #3: And the demand for health care professionals is expected to remain high . And so a lot of the trends that we've seen in the quarter , some of it is the fundamentals of the industry .
Speaker #3: And obviously what we're doing on the product side , on the marketing side to execute at the level that you're seeing . And so if you even to your question around like the trends we're seeing , we're seeing our customers come back .
Speaker #3: If you look at repeat frequency and you kind of remove the impact of the promotional pullback , we're seeing , repeat frequency up significantly .
Speaker #3: We're seeing our reactivations up significantly . And we're seeing actually cohorts performing across all income levels . So really great trends across the board .
Speaker #3: You know and we're and we feel really confident that you know the post-Covid overhang is easing . And we're operating in a much more normalized environment .
Speaker #3: And it's great to see.
Speaker #8: Thanks so much . I'll pass it on .
Speaker #1: Thank you for your question . Next question is from the line of Matt Koranda with Roth Capital . Your line is now open .
Speaker #9: Hey guys , it's probably just a follow up from some of the earlier questions , but just wanted to hear a little bit about what's driving the acceleration that you're implying into the fourth quarter .
Speaker #9: Despite the tougher comparison year over year . Just wanted to hear a little bit more about customer strength . It sounded just like Trina , like you just said .
Speaker #9: Even your lower income cohort is still performing well. I just wanted to hear you kind of talk a little bit more about the drivers of the acceleration at the end of the year here.
Speaker #4: Hey , Matt . Yeah . So , I mean , we've been seeing some really broad based and healthy trends that have continued to progress as the year has gone on .
Speaker #4: And see the opportunity for that to continue into Q4 . And so , you know , we feel feel good with , you know , how our product and marketing is set up for the fourth quarter .
Speaker #4: And we think we can get there with , you know , continuing the trends that we've seen . So we've been seeing that new customer acquisition has turned positive in terms of growth for the last two quarters .
Speaker #4: And seeing that momentum also really come from our domestic business , which carries weight in terms of the overall growth . We're seeing some , you know , great trends in the business as usual days .
Speaker #4: That has been accelerating . So all of those components have been captured in how we're thinking about the fourth quarter upcoming from a promotional perspective , our our stance has still remained with how we had seen before .
Speaker #4: So , you know , the the improvement in revenue growth expectations from Q4 are really comes from our business as usual days . So no change in how we've been thinking about promo and and for Q4 , you know , the focus will be on Black Friday , Cyber Monday .
Speaker #4: But you know , similar to previous quarters , there will be a pullback in our efforts versus the prior year .
Speaker #9: Okay . Helpful . Can I ask about community hubs ? You guys sounded more excited . I guess , than usual about the opportunity to lean in there .
Speaker #9: Going into 26 , just wanted to hear a little bit more about the potential drivers of growth with Community Hub and where we are with store formats .
Speaker #9: How they're set up for for growth next year .
Speaker #4: Sure .
Speaker #3: Thanks , Matt . So we're really excited about our community hubs . We're about to more than double the amount that we have .
Speaker #3: We only have a community hub in Century City in Los Angeles today and in Philadelphia and Rittenhouse Square . And we're about to open .
Speaker #3: New York City on the Upper East Side at 69th and third . This , you know , we're right in what's called Hospital Row , which is incredible .
Speaker #3: So you have Memorial Sloan-Kettering , you have the Hospital of Special Surgery , New York Presbyterian , Weill Cornell , Rockefeller . These are powerhouse healthcare institutions that are literally at the same intersection of where we .
Speaker #3: Houston . We're opening right near Texas Medical Center , the world's largest medical complex . It has 120,000 employees , 10 million patient encounters , a year , over 180,000 surgeries a year .
Speaker #3: And so Houston incredible healthcare professional , you know , city . And it's in a great place to be . And we're really excited .
Speaker #3: Finally , Chicago . We're located less than two miles west of the loop . We're in Illinois Medical District . It's one of the largest urban medical district clusters in the United States .
Speaker #3: Four major hospital systems , two medical university campuses , 40 plus healthcare related are facilities . And that's just those are just opening the rest of 2025 .
Speaker #3: And it's November 6th today , so couldn't be more excited . We're taking our learnings from what we've seen with our first two hubs , 40% of customers are still coming in new to the brand , 30% of customers that are coming into our our community hubs are becoming omnichannel customers .
Speaker #3: You know , coming back into the stores , coming back to us online . So really strong . And we're seeing really strong incrementality in the markets that we're in .
Speaker #3: And so took a lot of the learnings from our two hubs . We've redone the format , the space , how much you know , how much inventory we can get on the floor , how we're approaching our colors , color drop stories , our newness , our layering , our fit , and how we can showcase that in a new and original way .
Speaker #3: And finally , customization , right ? Everyone wants their scrubs embroidered with their name and their logo so they can tell the world who they are and what they do .
Speaker #3: And so these are just , you know , being in person with our community , having them feel and touch and experience our product and our brand is , you know , it's it's so amazing and so important .
Speaker #3: And we're really excited .
Speaker #9: Very exciting . I'll leave it there . Thank you .
Speaker #3: Thanks , Matt .
Speaker #1: Thank you for your question . Next question is from the line of Brian Nagel with Oppenheimer . Your line is now open .
Speaker #10: Hi . Good afternoon . Nice quarter . Congratulations . Thank you . So I've got a couple questions , I guess one nearer term and one long term .
Speaker #10: So on the near term side , as we look at this , the sales acceleration , the business particularly what's happened here in third quarter , then as you're telegraphing in the fourth quarter , to what extent is that sales acceleration being driven by by new products , the new product introductions .
Speaker #10: And then my follow up question , I guess , is longer term , a little bit longer term in nature . But now as we're watching the top line of figs start solidify , you're seeing the sales growth .
Speaker #10: Is there any update of thinking on how the margin particularly in EBITDA margin profile of business , should evolve over time , or should we have the potential to get back to the peak operating margins ?
Speaker #4: Great . So in terms of your question on , is the growth coming from new products ? I mean , actually what we're really excited to see is the majority of the growth is coming from our core products .
Speaker #4: And even in our core colors . So that's , you know , a great foundation for the long term health of our business .
Speaker #4: So , you know , obviously , we've seen growth in some of our newer styles and in our color . And it's really showing that when we showcase some of that newness and innovation , it actually drives the halo effect to our overall core .
Speaker #4: So really great for us to to see there that we have the ability to continue that momentum longer term from a sales growth perspective , in terms of EBITDA for next year .
Speaker #4: For now , we've made the commitment that our adjusted EBITDA margin rate would be , you know , within range of our guide for 2025 .
Speaker #4: And so we do have 330 bips of tariff headwind year over year into next year . So we would be offsetting that in order to stay within range of this year .
Speaker #4: And so our ability to , you know , meaningfully offset that is from improvements that we are making in the business to be more efficient , to drive into savings , you know , while still being able to invest for the longer term .
Speaker #4: And so , you know , we'll have some harder ability to expand margin next year just due to the tariffs . But longer term , we see the path for , you know , this foundation to continue to go forward .
Speaker #4: And us for , you know , to drive growth both top line and into bottom line .
Speaker #10: I appreciate it . Thank you .
Speaker #1: Thank you for your question . Next question is from the line of Dana Telsey with Telsey Group . Open .
Speaker #11: Hi . Good afternoon everyone and nice to see the progress Gina . Two things as you think about the Olympics , as you think about the Olympics coming up and the marketing for the Winter Olympics .
Speaker #11: What will be the same or different than what you did for the Olympics in Paris ? Knowing that summer . This is winter .
Speaker #11: What do you see as the difference ? One of the interesting things in the quarter is the sequential improvement . The growth rate of the non scrubs business up high singles compared to the slight decline last quarter .
Speaker #11: What are you seeing there? What categories are resonating? Thank you.
Speaker #3: Thank you so much Dana . So we're really excited about our continued partnership with team USA . As you know , we're the first company ever to outfit a medical team for any country globally .
Speaker #3: And we're really proud to be able to do that again for these upcoming Winter Games in Milan . So there's a few things that we really learned , and we're going to be applying from our lessons in Paris .
Speaker #3: First one is that we're finding more ways to have an impact . We learned a lot in the ground . We've created an even better , if you can imagine , in more dedicated space at the team USA .
Speaker #3: Welcome experience . So that's really exciting . We have a brand new fabrication called fiber X . It's really made for healthcare professionals in , you know , more high impact environments like what you would be doing outside in winter and especially for the medical professionals supporting our athletes during the Winter games .
Speaker #3: I do believe this fabrication is going to go well beyond that . To serving healthcare professionals within hospitals and offices and clinics , and it's a really , really great , lightweight , durable fabric that is awesome .
Speaker #3: You're going to love it. And then finally, I think we've learned a lot in terms of how to optimize our marketing spend and how to ensure that we're really balanced across the funnel.
Speaker #3: And I think you've seen that throughout this year , really taking these very strong top of funnel marketing campaigns that in some ways are breaking the internet .
Speaker #3: And how do we , you know , bring that all the way down to our healthcare professionals that are on social or across channels and to meet them where they are with really strong product that serves their needs and really strong messaging that resonates and really shows the best of them back to them .
Speaker #3: And I think that's what this campaign is going to do. Again.
Speaker #4: And then your question on non scrub , where in Q2 , the growth rate was negative and that was really impacted by clumping over the the same quarter of the prior year that had some additional non scrubber launches .
Speaker #4: So, what we've seen with category performance for non-scrub is that it can vary based on promotional comparisons, as well as the impact of new styles in different quarters.
Speaker #4: And our work to reinvent a few areas . Happy to see that we inflected positive in non scrub where this quarter and even still we you know we are comping against the strong quarter stronger quarter last year from where we had Olympics .
Speaker #4: So we had strong accessories and outerwear growth from Olympics last year . That doesn't annualize this year . And you know , I would say that , you know , our our non scrub .
Speaker #4: Where did perform to our plan and is outperformed the first half . We've been happy to see consistent attachment rates and really excited about the opportunity ahead .
Speaker #4: For many of the categories within non scrub where .
Speaker #11: Thank you .
Speaker #1: Thank you for your question. The next question is from the line of Ashley Owens with KeyBanc Capital Markets. Your line is now open.
Speaker #12: Hi great . Good afternoon . And congrats as well . But maybe just first to touch on international with this . With this now being 16% of revenue of the quarter , you know , if we kind of parse that out and think of that as just shy of a 100 million run rate for the business , could you just walk us through some of the next building blocks ?
Speaker #12: How you're planning to scale these regions ? I know regions like Japan , South Korea are still really new . China is obviously coming on board , but would just be curious on thoughts as to , you know , if international could sustainably grow at double digits for for the next several quarters and how you're thinking about that long term mix target there .
Speaker #3: Yeah , I mean , we have a two pronged strategy , actually , in terms of where we go broad and where we go deep .
Speaker #3: And , you know , it's been really exciting to see that we'll be at 60 markets by the end of this year . And that's driven by our ability to , you know , leverage both technology and our understanding of each region and use the commonalities across regions to open up markets very efficiently .
Speaker #3: And so think about we just in Q3 , we opened up 12 new markets , Argentina , Bolivia , Chile , Ecuador . I won't list them all , but we can you can get that .
Speaker #3: And then in the fourth quarter we opened up a number of countries in the Middle East and in Africa . So that's really exciting .
Speaker #3: And then to your point , how do we how do we go deep . Right . That's the second part of the strategy where one certain markets reach scale .
Speaker #3: Think about Canada , Mexico , UK , Australia . We're able to really invest more in the brand and brand awareness and really localize deeply deeper engagement with our ambassadors , with events , in-market support .
Speaker #3: And so and having talent on the ground in the in these places . And so it's very exciting to continue to build out , you know , in , in both in , you know , newer markets , but also really go deep in these larger markets that have hit what I would call critical mass .
Speaker #3: And so , you know , no matter where you live . Prior to Figs , you had this horrible experience with your uniform .
Speaker #3: And so our goal is to get to more healthcare professionals around the world and help change the game for them.
Speaker #12: Okay . Got it . That's super helpful . And then just quickly to follow up , maybe on the return rate improvement , if you could help us contextualize how much of the progress there benefited margins in the quarter or the magnitude of the decline you saw , and then just following up , moving down the PNL , any other quantifiable cost savings from fewer restocks and reverse logistics activity that you'd be willing to share .
Speaker #12: Thank you .
Speaker #4: Yeah . So within returns , you know , we've we've seen overall improvement in our return rates . And that is largely attached to , you know , some of our improvements to fit .
Speaker #4: But we definitely saw an outsized benefit related to returns processing. It is quite meaningful, the bump that we saw in Q2.
Speaker #4: And so you can really see how the implied guidance for Q4 does step down . That's both with tariffs and makeshift into non scrub , where that's usually happens in Q4 .
Speaker #4: And not recognizing the same degree of benefit on returns that we saw in Q2 .
Speaker #12: All right . Got it . I should have said Q3 .
Speaker #4: Q3 .
Speaker #12: Oh yeah . Yeah . Got it . Thanks .
Speaker #1: Thank you for your question . Next question is from the line of Sean Kernan with TD . Your line is now open .
Speaker #13: Yeah . Hey , thanks for taking the question . Obviously a lot of upside to quite a few line items in Q3 . I just want to go back to the prior question on the fourth quarter guidance , because it does assume quite a bit of the momentum on the margin level does not doesn't continue .
Speaker #13: Can you just unpack the the gross margin and then maybe the selling and G&A in fourth quarter and the expectations there given you had a lot of momentum coming out of Q3 on the top line and the margin profile just just curious , what's maybe changing in Q4 .
Speaker #4: Yeah , certainly . So we will have quite a step up quarter over quarter from Q3 into Q4 on tariff impacts . So there will be quite a step up on the incremental amount of tariffs that Q4 has to carry .
Speaker #4: And that will continue to step up as we go into 2026 as a higher portion of our inventory captures the full amount of tariff .
Speaker #4: We also have seasonality to consider, so we have a much higher proportion of our business in the fourth quarter that has non-scrubber products, which carry a lower margin rate.
Speaker #4: You'll you'll kind of see that seasonal mix . If you look back at the proportion of non scrubber business in Q4 . So planning similarly .
Speaker #4: And that will have some drag on the quarter. And then also just to consider, from a year-over-year perspective as you're looking at Q4, that we did have a sizable duty drawback benefit in the fourth quarter last year.
Speaker #4: That was one time catch up . So we won't , you know , that'll have a headwind into your growth in Q4 as well .
Speaker #4: And then I think you're asking in terms of the the overall PNL profile , I mean , you know , as we think about our selling costs , we've continued to see improvement there , each each quarter .
Speaker #4: And happy with our efforts there . And that will continue into Q4 . So a lot of really great work that's been done to negotiate with our vendors .
Speaker #4: You know, bringing on multiple carriers and at the same time, being able to provide even better service. And so that will continue into Q4.
Speaker #4: From a marketing perspective , the marketing rate will increase in Q4 . From what you've seen each quarter in 2025 . And that's a function of us starting our investments to support the Olympics , which happened in Q1 of 2026 .
Speaker #4: And then, you know, as we go into a, we've been continuing to see the decline in our stock comp expense year over year, and that trend will continue into Q4 as well.
Speaker #4: I think those are the main puts and takes on how we think about the profile for Q4. So, while.
Speaker #14: That's .
Speaker #13: Helpful , thank you .
Speaker #1: Thank you for your question . Our final question comes from the line of Angus Kelleher with Barclays . Your open .
Speaker #14: Hi, this is Angus Kelleher on for Adrian. Congrats on a solid quarter. I wanted to ask how you are balancing.
Speaker #14: No problem . How you're balancing the elevated inventory growth against the plan to pull back on promotions . You know what safeguards are in place there to avoid margin pressure or excess stock .
Speaker #14: And I guess just more broadly , how do you feel about the composition of that inventory ?
Speaker #4: Yeah , thanks . So we've been intentionally investing in inventory to support demand and improve our core in-stock levels . And we've really seen improvement in those in-stock levels , which , you know , has been supporting our sales growth .
Speaker #4: We did have an impact from higher than expected in-transit inventory in the quarter, which we do view as positive, as it does result from the work we're doing with our partners to drive consistency and execution.
Speaker #4: And it's ultimately driving shorter lead times . And so if you were to adjust for that higher in our unit growth would be low double digits .
Speaker #4: So much more in line with our Q3 growth and our Q4 guide . We'll also giving us the opportunity to potentially capture upside .
Speaker #4: So we're effectively getting products more efficiently . And we do need to adjust . And , you know , as we as we look at the go forward , we would expect some moderation in unit growth .
Speaker #4: And that's really just as this in-transit timing adjusts . And then from a dollar growth perspective , we actually expect that to increase into the fourth quarter .
Speaker #4: And that's really a function of those tariffs impacting that inventory that's coming in . So you know our inventory is higher . We do have some pockets of inventory that we are working down .
Speaker #4: We've got some older fit profiles and areas we intend to reinvest in the future seasons . We have made some good progress here , including , you know , with our targeted promotional efforts and selective write offs .
Speaker #4: We were able to do and we do continue to make progress here and in the quarters ahead . And we're working on improving , you know , greater discipline and efficiency to our buying process .
Speaker #4: And over time , we do expect that inventory balance to come down over 2026 , despite the higher tariffs .
Speaker #14: That's great . Thank you . And then if I could just squeeze one last one in about teams , how is the team's strategy evolving .
Speaker #14: How is the target customer shifted over time . There . And then you know , just if possible , any margin commentary you could share on the contribution of that business ?
Speaker #14: Thank you .
Speaker #3: Well , first off , I just want to thank you for not ending on inventory question . So thank you for adding something about teams that I'm so excited to talk about .
Speaker #3: Our teams business . So it's really we've been really focused on investing in our teams business as we look to , you know , ensure an optimal foundation to set us up for the future .
Speaker #3: We've talked about our outbound strategy , bringing on new institutions that are looking to standardize and brand their teams . And we've made a lot of progress .
Speaker #3: The biggest kind of item that we're excited about is the upgraded technology we mentioned it in the earlier in the earlier part of this call , and so this is really designed for healthcare teams of all types and sizes .
Speaker #3: This platform is going to give organizations much more flexibility and functionality to purchase in the way that makes sense for their team . We are on our way to becoming the employee store for all different types of healthcare professionals .
Speaker #3: That's going to go well beyond traditional group ordering , and this is going to introduce new capabilities like stipends , like gifting . You know , different types of discounts based on your employee type .
Speaker #3: And so we're really excited about being able to roll out this upgraded Teams experience. It's going to feature our full product assortment.
Speaker #3: It's also going to be able to support international teams customers , which hasn't been the case . And so we think we're going to be able to unlock meaningful growth in the future .
Speaker #3: And so and then you asked about the margin point .
Speaker #4: The margin profile shows that the team's profitability is accretive. Bottom line, it has a lower gross margin profile due to the offering of a higher discount.
Speaker #4: But then, the operating expense structure is much more favorable, with the efficiencies both within outbound shipping as well as marketing. I'm so excited about the overall economics that this business provides.
Speaker #14: Great , great color , 100% awesome color there . Thank you .
Speaker #3: Angus. That was good.
Speaker #1: There are no additional questions waiting at this time, so I'll pass the call back to Trina Spear for any closing remarks.
Speaker #3: Thank you all for joining us. I'm really excited to speak with you all, and we'll talk again soon.