Good evening, everyone. And thank you for joining today’s FIGS Third Quarter Fiscal 2022 Earnings Conference Call. My name is Don Penn. I am your operator for today’s call. All lines will be muted during the presentation portion of today’s call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Ms. Jean Fontana, Head of Investor Relations. Ma’am, the floor is now…

Thank you. Good afternoon. And thank you for joining today’s call to discuss FIGS third quarter 2022 results, which we released this afternoon and can be found in our earnings press release and in the stockholder slide deck on our Investor Relations website at ir.wearfigs.com. Presenting on today’s call are Trina Spear, our Co-Founder and Chief Executive Officer; and Daniella Turenshine, 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 10-Q we filed today, which we encourage you to review. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics, which we believe are useful supplemental measures for understanding our business. Reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in the earnings release and shareholder deck we issued today. Now, I’d like to turn the call over to Trina Spear, Chief Executive Officer of FIGS.

Thank you, Jean. Good afternoon, everyone. Thank you for joining us for our third quarter 2022 conference call. I want to thank the entire FIGS team for their hard work and devotion to the healthcare community. We delivered strong financial performance for the third quarter with net revenue growth of 25% year-over-year, gross margin over 70% and adjusted EBITDA margin of 16.4%. Our performance was led by a focused effort to expand our community, which grew our active customers by 24% to $2.2 million on an LTM basis. This is the second highest number of new customers of any quarter in FIGS’ history. We also delivered a record level of customer reactivation, defined as customers who have lapsed for 12 months and have since returned to FIGS. Looking at average order value or AOV, we delivered 10% growth year-over-year, as we continue to emphasize our complete layering system with the expansion of our lifestyle offerings. Lifestyle generated sales growth of 65% in the quarter and reached 17% of net revenue. Net revenues per active customer also increased, up $8 from last year. And finally, our international business delivered strong performance with a 49% increase in net revenue. While many of our key operating metrics showed strong performance, our frequency rates continued to slow. These softer trends became more pronounced towards the end of September and quarter-to-date. We attribute this to two factors, first, we believe the macro trends, including the sustained level of inflation, began to weigh more heavily on our healthcare professionals. Our own customer surveys tell us that FIGS remains their favorite brand, but they are pulling back on purchases due to their tighter budget. Secondly, recent color launches did not generate the same sales lift we have typically seen in the past. We expect these trends to…

Thanks, Trina, and good afternoon, everyone. I will begin with a review of our third quarter performance and discuss our revised outlook. For the third quarter, net revenues grew 25% to $129 million, compared to $103 million in Q3 last year, primarily due to an increase in orders from existing and new customers and to a lesser degree higher AOV. We were pleased to deliver a 24% increase in active customers, drove by ongoing initiative to drive brand awareness globally and strong reactivation among last customers. AOV grew 10%, led by higher unit per transaction or UPT and an increase in average unit retail or AUR. Both UPT and AUR benefited from the continued strong response to our lifestyle offerings, reflecting the power of our layering system. Orders containing a lifestyle product reflected a 30% higher UPT than those without. To a lesser degree, promotional events in the quarter also drove higher UPT. The higher AOV on an LTM basis drove net revenue per active customer to 227, up $8 from Q3 last year. While we delivered strong performance across key operating metrics in Q3, based on more recent trends in purchase frequency, we believe the impact of the macro environment on our customer base is increasing. In addition, as Trina stated, revenue from color launches did not meet our expectations. As a result, we are taking steps to increase the velocity of our product innovation strategy and take a more holistic approach to new styles and colors. Gross margin for Q3 was 70.6%, compared to 72.7% in Q3 2021. The 70.6% was above our expectations due to lower than expected freight costs. The 210-basis-point decline, compared to Q3 last year, was primarily due to increased freight costs resulting from higher airfreight usage and an increase in ocean freight rates.…

Thank you, ma’am. [Operator Instructions] Our first line of questions comes from the line of one Brian Nagel with Oppenheimer. Your line is now open.

Hi. Good evening. Thanks for taking my question. So I guess my first question, I mean, maybe a simple one, just with respect to the updated guidance and particularly Q4. So what you laid out for Q4, that mid-single-digit growth, is that consistent with what you are seeing in the business right now?

So looking at Q4, approximately half of that deceleration is coming from a decrease in frequency. Our forecast for the fourth quarter reflects the trends that we are seeing at the end of September and also quarter to-date. And as we look at our data, we do believe that healthcare professionals are still grappling with inflation and looking for ways to stretch their dollar further. The remainder is related to AOV, which we initially expected would be up slightly year-over-year as we are lapping an AOV of $113 in the fourth quarter of last year, which we do believe was partially fueled by stimulus spending. So our outlook now for Q4 reflects slightly lower AOV year-over-year. While we are anticipating higher UPT, we do expect that to be offset by lower AUR, given higher discount rates that we are planning to do at Black Friday, Cyber Monday. As a reminder, 2021, Black Friday, Cyber Monday reflected a record low discount rate due to strong consumer demand, as well as lower inventory. But that’s what we are seeing today and that’s what we have built into our fourth quarter forecast.

Got it. That’s helpful. Then my second question, just with regard to the comments you made around the color launches and maybe a more muted response to those launches on the part of your consumers. Actually I compiled a lot of few questions together, because, I mean, one, have you seen this before, is there a difference between how you are newer, or as I say, your existing customers and new customers are reacting? And then as you -- and assuming you all actually have played around with some price promotions, are you seeing a response when you put price promotions in place?

So on our color launches, to be clear, we are still seeing a strong lift in both our color and our product launches and our customer surveys are telling us that our healthcare professionals love new colors and that it’s a big purchase driver for them. That being said, we are learning fast and we are leveraging our insights to evolve our strategy there. Color is still and is going to continue to be a very big driver of the business, but we have a lot of new innovation coming, and we are going to take a more holistic approach to style and color launches and really integrating the stories together. I would also say, as a reminder, that color is more geared to repeat customers and so that’s where we are seeing kind of that bigger impact on repeat frequency. But I will kick it over to Trina to talk a little more about our color and product launch strategy.

Thanks, Daniella. Yeah. I think if you think about our launches, right? There’s really two things that we are adjusting for. Well, first thing is we are really aligning our launch frequency with the demand trends that we are seeing and how frequency rates have come down a bit as healthcare professionals are spreading out their purchases over a longer period of time. The second thing that we are doing is we are evolving our launch strategy to really be more holistic and focused on product innovation. And you saw that even with our launch of our Cargo Collection, with our launch of our Rafaela Scrub Jumpsuit, which is a huge hit and sold out very quickly, our Packable Puffer. And so these are some examples where we are really leaning into innovation where our healthcare professionals are coming to us, because we are bringing true functionality and really helping them in so many aspects of their jobs.

Okay. I appreciate. Thank you.

Thanks, Brian.

Thank you for your question, sir. Our next line of questioning comes from the line of one Ed Yruma with Piper Sandler. Your line is now open.

Hey. Good afternoon, guys. Thanks for taking the questions. I guess, first, just to click down a little bit on the change in accounting for the charitable contributions. Could you just make us maybe understand a little bit more of how that changed and kind of the impact to the P&L and then maybe there’s an impact going forward? And then as a bigger picture question, you guys put out a $1 billion bogey by 2025. I guess in context of the current environment, how do you feel about that target? Thank you.

So in relation to the change in our accrual methodology, this is an update that we made to our methodology to be more consistent for charitable contributions over time. It’s about 190 basis points of impact and it’s something that we don’t expect to repeat in the future. And Trina will take your second question.

So as it relates to the $1 billion target, we are still incredibly focused working toward our goal of $1 billion, but recognize that there is a lot of volatility in the macro, and therefore, the timing of this goal is a bit more uncertain. But we do see an incredible amount of opportunity in front of us, including product innovation, like what I just talked about, international, you saw the growth for the quarter, and developing our Teams business. From a product innovation standpoint, we have a number of newer categories in outerwear, as it relates to FIGS PRO, our Underscrubs category. We believe these can be incredibly large businesses in and of themselves. We also are actually launching completely new categories that our customers or healthcare professionals are asking for and we are incredibly excited about that. Separately, we talked about it on the call, but we are soft launching extended sizes, 3XL to 6XL and that’s incredibly important as we are positioning ourselves to address an underserved segment of our community. Another area of growth, international, you saw it in the third quarter. We are still in the very early innings of what this will become. We are serving 13 -- healthcare professionals in 13 countries and we are learning so much about their behavior and how they want to interact with FIGS. Our Teams business, we haven’t really talked much about this. This is our B2B business. It’s completely untapped at this stage as we have been very focused on our D2C business. But now with our extended sizes, we are really able to build out our platform around growth for our Teams business. And lastly, we are continuing to evolve not only our launch strategy, as I discussed, but also our marketing strategy, as we are really looking to be more impactful, develop deeper connections and really customize our messaging across channel. So we are working towards the $1 billion. We are doing what’s right for this brand over the long run, focusing on the development, the growth and the health of the company. We are making moves to continue to create significant and sustainable competitive advantage and continue to deliver industry-leading value creation.

Thanks so much.

Thank you for your question, sir. Our next line of questioning comes from the line of one Adrienne Yih with Barclays. Your line is now open.

Thank you very much. Good afternoon, everybody. Trina, I want to get back to the color. You have historically done very well with the color launches and I am sure that you will continue to innovate with color being a primary driver. So I guess the question really is, how do you use your data to do testing on what colors are going to uptrend and then to do more of a test and reorder, reading that demand such that in the future, you will be creating the product that the demand warrants. So that’s my first question. And then for Daniella, it’s going to be on the inventory, half the business is in that core styles. On the other half of it, what portion of that is to accommodate extended sizing and how many weeks of supply, I think you said that mid next year, you think you will have this inventory more in line with sales? Are you canceling orders, are you reducing your open divide? What are the actions that are being taken to get that in line? Thank you very much.

Thank you. So in terms of color drops, we continue to see a lift in sales from our color drops, and to your point, the data tells us that our customers love our color launches. But as we look forward, it’s really being more strategic and thoughtful about our drops. We saw it with the Cargo Collection. The Cargo Collection came in new colors, right? But what we did there was we really leaned into innovation of the style, the innovation around the silhouette, the innovation around our functionality and the utility that those products brought to bear. And so as we look forward, we believe there’s an opportunity to more effectively, in line with what I am saying, more effectively merchandise the colors through taking a more holistic approach across style, color and overall product innovation, creating more aspirational messaging around our launches to drive improved sell-through and buy more shallow -- really buying more shallow in terms of our launches to drive that sell-through and drive that flywheel going forward.

And Adrienne, as it relates to inventory, I think, it’s helpful to just remind everyone that as a uniform business, our product is largely replenishment driven. Additionally, 50% is in our core offering, so it’s seasonless, always in stock and really limits our risk of obsolescence. As you can recall, we intentionally increased our weeks of supply on our core product and we brought in color and product launches earlier due to lingering supply chain issues that we were experiencing. And additionally, a portion of our inventory did come in sooner than expected. We -- looking at kind of the non-core product, this is still a uniform. Historically, we have been able to move through this inventory without taking deep discounts and we do expect our discount rate to remain roughly in line with 2019, 2020 levels. We plan to move through some of this inventory during our Black Friday, Cyber Monday event and we are expecting that event to look similar to 2020 in terms of discount rate. So, overall, we expect to be in a better inventory position by mid-2023. Going forward, we plan to make more shallow buys for our product launches, we reduced our POs for our core product to lower our weeks of supply in the future and we are also making an enhancement to our supply chain, like diversification which we believe will make us even more nimble and enable us to improve flow in the future. We have a strong balance sheet to support our business from a working capital perspective as we navigate these challenges in the near-term and we think we will be able to move through this inventory balance.

Thank you. That’s very helpful. Best of luck.

Thanks, Adrienne.

Thank you for your questions, ma’am. Our next line of questioning comes from the line of one Brooke Roach with Goldman Sachs. Your line is now open.

Good afternoon and thank you so much for taking my question. Trina, Daniella, I wanted to talk about your holistic thoughts around the cost structure of the business today versus where it was a few years ago and some of the investments that you are looking to make over the course of the next year. Specifically in corporate G&A and maybe excluding stock-based compensation expense, you talked a little bit about investments for product innovation and international expansion. We also have an inflationary cost environment and many companies are taking a tighter look at corporate costs. There’s been a lot of noise here, but can you talk to us about how you are thinking about the run rate G&A level of the business as you emerge from some of this near-term noise, maybe second half of 2023 or into 2024, what that might run rate look like?

Thanks, Brooke. So we have always been focused on balancing growth and profitability. So this is a mindset that will continue for us. I think in a more uncertain macro environment, we will likely look to prioritize investments where we feel more certain about the return, where we can maximize ROI and really incorporate impacts from the macro into our near-term assessments. Specifically, on the G&A side, we are investing in product innovation, in technology and automation. But looking over the long-term, we do believe this is a line item where we can drive efficiencies, but making these investments at an earlier stage will set us up for more profitable growth in the future and that’s how we are really thinking about it.

That’s really helpful. And maybe just as a follow-up for Trina. Can you provide a little bit more information on the growth opportunity that you see in your Teams business? How important is that to near-term growth as you enter 2023 and how should we be thinking about that as a contributor as you seek to get back to your long-term algorithm of 30% growth?

Yeah. I mean I think our Teams business is something that is incredibly exciting. We build a first of its kind platform so that administrators could order for their entire department, their entire clinics, their entire office. And we make it really seamless to do that, to order hundreds, thousands of sets of scrubs for your entire team and so that experience has become more and more seamless. With extended sizes, it makes it even a bigger opportunity, because I don’t know another business out there where if one or two or 10 people can’t fit into your -- their uniform, the entire team won’t be part of the brand and so we are really excited about the future of Teams. To -- in the shorter term, we are still building out. We are really encouraged over the long run. This is going to be big.

Thank you very much.

Thank you for your questions, ma’am. Our next line of questioning comes from the line of one Michael Binetti with Crédit Suisse. Your line is now open.

Hey, guys. Thanks for taking my question here. So I don’t think I heard you speak about this earlier, but -- so you mentioned that the consumer survey showed the healthcare professionals pulling back a little bit on discretionary. Within your consumer insights, have you witnessed any changes in conversion or shifting between price points on the site and can help you inform you as to how you approach planning the assortment and how to be agile with what the consumer is asking for with forward inventory buys for next spring? And then, I guess, as a follow-up, I understand the demand line change in fourth quarter to-date, but can you help us think a little bit more about the EBITDA margin guide. I think it’s implied a little bit below 10, I understand a lot of the deleverage is tied to a lower sales expectation. What are some of the building blocks that are less tied to sales that you have line of sight to today that you can recapture for next year, be it freight or temporary warehousing costs?

Hi, Michael. So looking at our consumer surveys, we mentioned that they are potentially stretching their purchases a little bit longer, but they are still really loyal to the brand, they are still really excited about FIGS. What we are seeing on the site is, as we have discussed, AOV is higher and so we are driving that through both higher UPT and higher AUR. That’s really driven by our lifestyle and so we are seeing customers that when they come, they are really excited to build out their car and spend even more with us in a transaction. Looking at adjusted EBITDA and the fourth quarter and kind of what we are expecting to continue into 2023, I think, that was your second question, right?

Yeah. Yes.

Yeah. So looking at the fourth quarter, what we are seeing with gross margin is that our outlook is unchanged. We are seeing better than expected ocean and airfreight rates and that’s being offset by higher promotions. Turning to selling expense, we are expecting to see higher fulfillment expense than in the third quarter, because we are going to be having an entire quarter of these additional storage costs for inventory. The fact that inventory was shipped earlier than we expected and also that storage vacancy rates were at 1%. This wasn’t a cost that we had fully anticipated. Looking at marketing, we are expecting that to be just modestly above the 15% and G&A we are expecting to see an increase as a percent of sales due to an increase for our accrual for inventory donations and for some SOX implementation costs. What that looks like in 2023, on gross margin, we do expect the first half to be impacted by higher promotions year-over-year. We are seeing some additional margin pressure also from the product that we sell that was airfreighted in 2022. And this should be partially offset by easing freight rates and we are expecting gross margin to normalize more as we get into the back half of the year, and see better promotions year-over-year and also an easing of freight rates. With selling, we are expecting to see higher costs related to additional storage in the first half and a continuation of the higher shipping rates. We also expect to see some increase in our ongoing fulfillment expenses throughout the year related to initiatives that we discussed to improve flexibility and scale. We plan to maintain marketing at approximately 15% of net revenue as we really continue to focus on being first-order profitable. G&A, we will see some modest deleverage related to investments in product innovation, particularly as it relates to new categories, as well as costs related to tech enhancements and automation. So, while we are increasing investments in our business, we are also looking to continue to find ways to drive efficiency and we do expect there to be some offsets as well. So, like always, really continued on focusing on both growth and profitability as we continue to scale.

Thanks a lot, guys.

Thank you for your questions, Michael. Our next line of questions comes from the line of one Rick Patel with Raymond James. Your line is now open.

Thank you. Good afternoon, everyone. I was hoping you could talk about lifestyle products, maybe dig deeper there on what’s working, what’s not and where you have the most conviction to drive scale? And just given the slowdown in replenishment of scrubs, what do you see is the right penetration for that segment of the business going forward?

Thanks, Rick. So, approximately 35% of our active customers have purchased our lifestyle products. We are incredibly pleased with the growth of 65% year-over-year, it’s almost 17%, oh, sorry, 17% of our sales. So we are really excited about how we are going to continue to build this out. The three categories that are really driving that is our outerwear business. Our Packable Puffer is pretty amazing. So I would check that out, if I were you. Our footwear with New Balance, our New Balance collaboration continues to be an incredible growth driver as it relates to lifestyle. And finally, our Underscrub, and Underscrubs isn’t just the long sleeve, under scrub, underneath your scrub top and pant. It’s kind of everything that you are wearing underneath your scrubs from our sports bras, our leggings and so really looking to build that out over time. So those are kind of the areas of focus. There’s a lot of other categories that we haven’t even launched that will become part of our layering system and so we are incredibly excited about the future of not only our scrubs business, but also our lifestyle offering.

And can you also tell us what the mix of ocean freight versus airfreight will be in the fourth quarter, and how that compares to the year-to-date trend? I am just curious also when you can get back to a more normalized cadence of leaning into ocean freight as we think about 2023?

So as we have seen an easing in the supply chain. We are forecasting that we will see some benefit in gross margin in the fourth quarter as it relates to better than forecasted ocean and airfreight rates. We also expect to see a year-over-year benefit in airfreight from lower utilization and a decrease in rates year-over-year. So we are forecasting airfreight expense for the fourth quarter to be around $2 million. So we are seeing some benefits there. So, yeah, I think, looking now, we are getting into a more normalized place and we expect that normalization to continue into next year. As a reminder, we will be incurring some airfreight as we sell through the products that we brought in, in 2022 into 2023. But we are really minimizing the amount of airfreight that we are using for receipts going forward.

Thank you. All the best this holiday.

Thank you.

Thank you.

Thank you for your question, sir. Our next line of questioning comes from the line of one Lorraine Hutchinson with Bank of America. Your line is now open.

Thanks. Good afternoon. You spoke a lot about right-sizing the inventory by the middle of 2023. As part of that forecasting process, can you shed some light on how you are planning first half sales, will they -- would you expect it to be in line with current trends or are there levers you can pull to reaccelerate that growth a little bit earlier?

So in light of the current macro environment, it’s a little too soon for us to be providing 2023 guidance, but we will talk a little about what we are seeing and what we are thinking about for next year. We do expect trends to improve from the fourth quarter. But as you might assume, we are expecting a challenging first half, particularly in the first quarter due to macro, as well as efforts to move through our inventory. Going into the back of the year, we would expect to see more strength in the fourth quarter of next year as we are lapping easier comps. I would say while the macro is more of a headwind, we are continuing to drive our business forward. We are executing on building out our non-scrubwear, continuing to dive deeper international and also continuing to build just really deep connections with our communities. So we will provide more detailed information on 2023 on our next call. But that’s what we are seeing today.

Thank you.

Thank you for your questions. Our next line of questioning comes from the line of one Lauren Schenk with Morgan Stanley. Your line is now open.

Great. Thanks. Maybe a few quick modeling ones, if I can. Are you seeing any increased churn of existing customers or is it really just the frequency in AOV? Second, is there any way that you could help parse out sort of the freight versus promotional and product mix shifts in the 210 basis points in the third quarter? And then I just want to clarify that October is similar to the second half of October and then October has not gotten worse? Thank you.

So looking at your first question, which I think was about churn and what we are seeing in our cohorts. We have seen a modest increase in churn among newer cohorts, while our older cohorts have remained stable. Some of that is customers are showing up in reactivation. We saw a record number of reactivations in the third quarter. So a portion of that churn is healthcare professionals buying less frequency, but not leaving the brand. They are coming back in month 13, 14, 15 and continuing also to spend more with us as we deliver newness in our layering system. So as we look at these numbers, we are really focused on driving engagement with our customers through the expansion of our lifestyle offering, improved sizing and fit, through increased personalization and so there’s a lot that we are doing as we look at churn for the future. For your second question, I think, it was around -- can you actually just repeat it really quickly?

Yeah. Just on the third quarter, the 210 basis points of gross margin, just how much is freight versus promotional versus product mix?

So year-over-year, freight rate had a negative 220 basis points impact on gross margin. The other components of the deleverage was unfavorable sales mix shift to promotions and product mix and we saw a little bit of an offset there from better returns, driving gross margin up. And then looking at October, we are not really speaking to quarter-to-date trends, but given the supply chain environment overall, we are seeing customers waiting to purchase as opposed to last year and so our forecast does reflect the trends that we saw in October kind of continuing through the balance of the year. But we are not speaking specifically to what we are seeing month-over-month.

Okay. Thank you.

Thank you for your questions, ma’am. Our next line of questioning comes from the line of one Bob Drbul with Guggenheim. Your line is now open.

Hi. Good evening. Can you talk a little bit about the competitive landscape, if you are seeing consumers really on the market or the healthcare apparel segment, like, what you are seeing competitively? And then can you expand a little bit more on -- I know it’s early on the international, but any color on which markets have performed better for you or worse than expected? Thanks.

Sure. So from the competitive standpoint, we are not really seeing much from a change perspective. We continue to -- we are continuing to gain market share and our next closest competitor from a DTC perspective is still about one-tenth our size. Most try to compete on lower price, but the quality of their product is just not the same, right? And so customers remember quality. They don’t remember price and I think we have set ourselves apart, and we are continuing to set ourselves apart from everyone else as it relates to every single thing we bring to deliver and serve this community. As it relates to international, we are really just been super encouraged by the growth, 49% year-over-year and we have seen a lot of healthcare professionals really coming to the brand. Canada and U.K. are a huge focus of ours. We have seen that those two countries really drive that growth in a bigger way as we were building up the other newer countries we have entered. And so I couldn’t be more excited about international and what we will continue to do there. We are localizing the experience. We are bringing translations. We are really targeting each country with localized marketing efforts and so as we become a truly global brand, we are excited to serve the entire global health care community.

Great. Thank you very much.

Thank you for your question, sir. Our next line of questioning comes from the line of one Dana Telsey with Telsey Advisory Group. Your line is now open.

Hi. Good afternoon, everyone. As you seek to adjust the inventory levels, what channels are you going to reduce inventory through? I know you have done some things like in L.A. sometimes and you have an event to get rid of the inventory. How do you see that, how do you see -- how you see disposing of the inventory? And second, on the fulfillment enhancements that you are making, what should we see on over what time period and is there a specific cost allocated to that? And then I just have a follow-up. Thank you.

So looking at our inventory, we really don’t expect discount rate to be meaningfully different than 2019, 2020 levels. We do think we can move through this inventory at a discount rate that looks like our historical levels. We have multiple channels and events through which to move inventory. So we have our Black Friday, Cyber event that’s coming up. We also are planning to launch an Evergreen sales section to our website to drive just more consistent performance between launch and non-launch days and this feature will also enable customers to come back and purchase their favorite prior colors on our sales tab at any time. We can move through inventory similarly through Amazon or our B2B business. So we are evaluating all of our channels and determining the best way to approach it and meet the customer where they are with the colors that they are really excited to see. Can you, I am sorry, can you repeat your second question?

Fulfillment, you talked about making enhancements to fulfillment. What are you doing and what’s the timeframe to complete what you want, and is there a cost to that, that’s either permanent that’s part of your margin -- as part of the margin structure or some transitory that goes away after you implement it?

So on fulfillment, we are really kind of in the process of evaluating this right now. So we will be giving a more fulsome update on our next call. But we are looking to continue to build to drive more flexibility, to improve efficiency and to ensure that we can really provide the best experience to our customers. We are expecting this to come at a higher rate. But we do think that it’s the best thing for the business over time. We don’t have the specifics today. But we are planning to do an update on our next call.

Okay. And then, just lastly, you have added some new talent, whether it’s in merchandising or in marketing. Any updates to the processes that they are bringing or that the opportunity that they foresee, and Trina, how you look at working with them in order to move the ball forward?

Yeah. I mean, this is really exciting. We recently brought on Sunil Kaki as our Chief Marketing Officer. He comes from an extensive background from Amazon, Intuit, Beachbody and really brings not only digital knowledge and know-how, but also really has a lot of deep background in brand building and community engagement and so we couldn’t be more excited about him joining us. And I think what you are going to see over time is really us capitalize on a larger opportunity to align our creative, align our messaging with the appropriate channel and the appropriate audience. And this is something that we are actively implementing today and we couldn’t be more excited about in the future.

Thank you.

Thank you for your questions, ma’am. Our last question comes from the line of one John Kernan with Cowen. Your line is now open.

Great. Thanks. Just wanted to go back to some of the points on fulfillment and distribution, it looked like selling expenses per order were -- was up pretty significantly in the third quarter. Any specific dynamics related to that and how should we think about selling expense as we get through into Q4 and next year?

So fulfillment expense was higher in the third quarter because of these additional storage costs for our inventory. As we said, inventory shift earlier than planned and storage vacancy rates were at less than 1%. So it was more costly than anticipated to store this inventory. Looking into the fourth quarter, we are expecting to have a full quarter of these additional costs and so we would expect that to continue to remain pressured. And probably looking into the first half of 2023, we will see some pressure from this additional storage line item.

Understood. Thanks. Just one more question, on the inventory. It’s up about $100 million on a cost basis on the balance sheet, about 142% year-over-year. If we back into the inventory turn, it’s a little over 1 time. How do we think about DSOs and inventory turn as we get into next year?

So we are expecting to be in a better inventory position by mid-2023 on a turn and a day’s perspective. As a reminder, our product is largely replenishment driven, it’s a uniform. So we would expect to have higher inventory days than a traditional apparel company. We want to make sure that we have this product. It’s always in stock, always in style and we can serve our healthcare community. So we are looking -- we are actively making updates to bring that down and we are expecting it to be in a better position by mid-2023. But we would expect to be higher than a traditional apparel company.

Understood. Thank you. Best of luck.

Thank you.

Thank you for your questions, sir.

Okay. So I think we got -- okay. So I think we got a few questions from our shareholder community through the Say platform. I really just wanted to address a key topic that came up through the platform around the integrity of FIGS and how we are addressing that. And I think a lot of the noise around this really stems from a recent litigation with a company called SPI. SPI has spent the last four years spreading lies and falsies about our company and myself personally, my Co-Founder, Heather Hasson personally. And I think over the last -- over the last few years, four years, we have really done a good job about putting blinders on and just focusing on growing our business, focusing on serving our community. But I am really proud to say that after four years, it’s been -- it’s a profound feeling to finally have our day in court and we were in Federal Court over the last three weeks, where finally the truth came out. And after three weeks of trial, the jury unanimously found in our favor on every single issue. They found that we did nothing wrong. And as painful as this experience was, I am glad that justice was served. But I am also -- what it showed us is that, it’s just -- it showed us how much FIGS has revolutionized this industry and we are not stopping here. We are going to continue to revolutionize the industry and change the game for healthcare professionals. That is why we wake up every single day to show up and serve and so that’s what we are going to continue to do. Thank you all for joining us. Thank you all for joining our third quarter call and we look forward to speaking with you again soon.

And with that, we will conclude today’s FIGS third quarter fiscal 2022 earnings conference call. Thank you for your participation.