FIGS: U.S. Market Seems To Be Turning, But The Name Is Still Expensive

FIGS, Inc. reported stronger-than-expected Q2 '25 results, with 6% revenue growth driven by a notable 4% U.S. segment rebound and 8% scrubwear growth, signaling a potential turnaround in core demand. The company demonstrated significant OpEx leverage, boosting Adjusted EBITDA by nearly 400bps, and subsequently improved its full-year revenue and EBITDA guidance. Despite these positive developments, the stock declined 5% on the announcement, with the analyst attributing this to high expectations and maintaining a 'Hold' rating due to the company's 'extreme valuations' (trading at ~40x earnings) and a more muted outlook for 2H '25 influenced by tariff pressures and reduced promotional activity.

Analysis

FIGS, Inc. reported operationally strong Q2 '25 results, characterized by a 6% year-over-year revenue increase that surpassed expectations. This growth was driven by a significant rebound in its core U.S. market, which grew 4%, and a notable 8% expansion in scrubwear sales—both metrics reaching their highest levels in two years and signaling a potential turnaround in post-COVID demand. While the non-scrubwear category declined 3% due to reduced promotional activity, the international segment expanded rapidly at 20%, contributing $4 million in new revenue, an absolute value now on par with the U.S. segment's contribution. A key positive surprise was significant operating leverage, with selling expenses down 300bps and adjusted EBITDA margin expanding nearly 400bps, driving operating profit to almost $10 million from $1.5 million in the prior-year quarter. Despite these improvements and an upgraded full-year guidance for low-single-digit revenue growth and higher EBITDA margins, the stock declined 5%. This negative reaction reflects the muted outlook for the second half of 2025, risks from tariffs impacting gross margins without price increases, and a valuation that remains exceptionally high. With a market capitalization of $1 billion, the company trades at approximately 40 times its peak FY22 net income, a multiple that suggests future success is already more than priced in.

Key Decisions for Investors

• Given the stock's extreme valuation at approximately 40x peak earnings, which suggests future growth is already priced in, investors should be wary of the high expectations embedded in the current share price.
• Closely monitor core U.S. growth and gross margin trends in the second half of 2025, as muted guidance indicates potential headwinds from reduced promotions and tariff impacts.
• A 'wait-and-see' approach may be prudent, as the disconnect between strong operational execution and negative stock performance highlights significant valuation risk until a more favorable entry point materializes.