Good afternoon, and thank you for joining the FIGS’ First Quarter Fiscal 2023 Earnings Call. My name is Kate, and I will be the moderator for today’s call. [Operator Instructions] I would now like to pass the call over to our host, Jean Fontana, Head of Investor Relations at FIGS. You may proceed.

Good afternoon. Thank you for joining today’s call to discuss FIGS’ first quarter 2023 results, which we released this afternoon, 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; Daniella Turenshine, our Chief Financial Officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. We may see 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 which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. That submission or reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the cycle of slide deck issued today. Now, I would like to turn the call over to Trina Spear, Chief Executive Officer of FIGS.

Thank you, and good afternoon, everyone. We are pleased that exceeded our first quarter expectations across key financial metrics. We delivered profitable growth through disciplined execution of our strategy that are on track to achieve meaningfully improved inventory levels by year-end. While the macro environment remains uncertain, FIGS is an iconic brand and I believe that we will advance our leadership position in the healthcare apparel industry while expanding our TAM. Touching on the financial highlights from our first quarter. Net revenues grew 9% to $120 million as compared to the first quarter last year. We delivered gross margin of 71.3% and adjusted EBITDA margin of 13.4%, all of which were above expectations. Our growth was fueled by a 22% increase in active customers driven by strong customer loyalty as reflected in record reactivation rates during the quarter as well as new customers. LTM revenue per customer was down 4% to $216, due in part to a nearly 2% decline in AOV and lower frequency versus last year. While these metrics were down year-over-year, they were ahead of our expectations. Once macro pressures subside and as we continue to advance our initiatives, we believe these metrics will improve. International continued to deliver strong performance with revenue growth of 45%, driven by expanding brand awareness and engagement across our global market. I want to thank our team for their unwavering commitment to serving healthcare professionals each and every day. I also want to thank our awesome humans for their loyalty as we continue to support them through our solutions-based product innovation, as well as through our efforts around advocacy and giving back. Since our call at the end of February, we’ve continued to build out the layering system with proprietary non-scrubs products engineered to work with our best-selling scrubs. Our recently…

Good afternoon, everyone. We are pleased to deliver better-than-expected results for the first quarter with strong flow-through of top-line outperformance. We are making progress against our initiatives while exercising discipline around expense management, and we expect to deliver positive free cash flow for the remainder of the year. I’ll begin with a review of our first-quarter financial results, followed by our outlook. Beginning with first quarter net revenues, we grew 9.2% to $120.2 million compared to $110.1 million in Q1 last year, reflecting an increase in orders, partially offset by modestly lower AOV. While frequency trends and AOV were down year-over-year, they were better than expected. Growth in active customers remains robust, increasing 22% as we welcome new healthcare professionals to the FIGS brand globally. In addition, we continue to see more of our customers who have not purchased within the last year come back to the brand after month 12. Turning to AOV, we saw a decline of 1.7% to $114. This compares to $116 in Q1 2022, which benefited from an elevated mix of non-scrubber associated with one of the largest shoe product [ph] launches, as well as supply chain disruptions causing out-of-stocks in our core scrubs products. In addition, a higher mix of sales were derived from promotions, again, in line with our expectations given the macro environment. Gross margin for Q1 was above our expectations at 71.3% compared to 71.2% in Q1 2022. The 10 basis point increase compared to Q1 last year was primarily due to lower airfreight utilization, partially offset by the higher mix of promotions and higher duties. Moving to operating expenses. Selling expense for Q1 was $31.2 million, representing 25.9% of net revenues compared to 20% in Q1 2022. This 590 basis point increase was largely due to higher costs within fulfillment,…

Thank you. [Operator Instructions] Our first question will be from the line of Ed Yruma with Piper Sandler. Your line is now open.

Hey, good afternoon. Thanks for taking the question. I guess, first, thanks for the update on inventory and when you kind of expect to get to alignment. I guess just maybe looking at some of the promos you ran in the first quarter, how would you gauge your success in kind of closing out the inventory you wanted to close out? And as we think about the promotional cadence going forward, are there – how should we think about the shape of that kind of promotional curve as you wind through that excess inventory? And then as a follow-up, I know you guys had some really interesting innovation in the quarter, you launched Reed Scrub Jacket. Maybe just any more color on the performances, some of the new SKUs you launched, and kind of how you see that unfolding for the balance of the year? Thank you.

Thanks, Ed. I’ll start with your inventory question. So, as it relates to the success of our promotions in the first quarter and what that curve looks like for the remainder of the year, our inventory was as expected at the end of the first quarter and really getting our inventory into a more normalized position is a really big priority for us, and we do have initiatives in place to get to 25 weeks of supply by year-end. I think just as a reminder, we’re a uniform business. Our product is seasonless. It doesn’t go out of style. 55% of our product is in core styles and classic colors, which are always in stock, always available on our site. And so, we’re confident we’ll move through the products at reasonable sell-through rates and disciplined promotional levels. We’re really focused on balancing, protecting the brand for the long term with the pace – with the right pace to move through our inventory balance. And so, as we’ve done, we’re going to continue to really keep a similar promotional cadence that we have to the prior year. We did that in the first quarter. We’re planning to do that into the second quarter as well, but we are being mindful of mix shift that we’re seeing into some of these more promotional times. And looking at our inventory balance, we have initiatives that we’re doing to really work through the balance outside of promotions. First, as we’ve seen shipping times normalize, we’ve been able to shorten our lead times, which has really enabled us to be more flexible with our inventory planning. We’re updating our purchasing to buy more shallow in the future, and we’re bringing back previous launches of limited edition inventory in ways that feel really new and exciting to the consumer like you saw on the FIGS10 Iconic Series. And with that, I’ll turn it over to Trina.

Thanks, Daniella. And thanks, Ed, for the question. So, in terms of the Reed and Page Jacket, those were great additions. They’re cargo scrub jackets, eight pockets. I think it’s actually one of our most technical scrub jacket that we’ve launched. And we had a number of other product introductions throughout this year that we’re super excited about and really resonated well with our community. To the point about innovation, I really want to reinforce how we think about it at FIGS. Product innovation is first and foremost about solving real problems for healthcare professionals. And we do that with premium products. And sometimes this is just as simple as updating pockets like what you saw with the scrub jackets, adding zippers, changing our waistband to classic silhouettes. And that’s on one end. On the other end, it’s building completely new businesses, and you’re seeing that right now with our FIGSPRO line. You’re seeing that with our FREEx fabrication, and you’re going to see more going forward on all of these fronts. And this all comes back to listening to our customers and creating products that enable them to perform at their best. Everything we do at FIGS is designed with intention. And every product we make becomes part of our layering system, which coordinates across our product lines, across our colorways, and our accessories. And it’s one of the reasons that almost 70% of our revenue is from repeat customers. And to Daniella’s point, when we think about our inventory levels, they’re not impacted by the amount of newness and innovation that we’re able to deliver to our customers. New – our new launches keep our customers engage with our brand, whether they’re purchasing the product that we just launched, like you saw with the Reed and the Page jackets, or whether they’re coming back to buy their favorites, our core or other products that have existed on our site. And so, as we think about innovation, it’s happening at FIGS every single day, 24/7, 365 days a year and it’s driven by solving real problems in the most creative, comfortable, and functional way possible. And that’s why we are where we are. And this is a huge differentiator for us.

Thanks so much.

Thank you. Our next question will be from the line of Alice Xiao with Bank of America. Your line is now open.

Hi. Thanks for taking my question. Can you please elaborate on the quarter-to-date trends that you’ve seen and also how AOV conversion and customer purchase – purchasing frequency have trended since the end of the quarter?

So, our Q2 guidance is not necessarily reflective of our growth rate quarter-to-date, but really, it’s an expectation of the quarter’s performance in aggregate. Given our main event of the quarter, Nurses’ Week is actually kicking off today. We still have a lot of volume in front of us, and we’re cognizant of that in the guide. So, we’re not speaking specifically to trends intra-quarter today.

Got it. Thank you. And then just really quickly, can you talk a little bit more about the team’s business percent of mix? And any progress in signing up more customers? Like what percent of the assortment is currently available versus what you want to make available through that program? Just any quantifications around that would be really helpful.

Sure. Our team’s business is smaller today, but there’s a massive opportunity in front of us. 15% of healthcare professionals receive scrub, receive their uniforms from their institution. And so, we’re really excited about this opportunity. We’re on track in terms of upgrading our platform to incorporate more availability across our assortment. It’s going to enable more types of institutions to participate and be a part of the FIGS brand, from hospitals to schools to med spas to concierge clinics, private practice. So, we couldn’t be more excited about our Teams platform, everything that we’re doing to help standardize and professionalize medical teams across the U.S. and across the world.

Thank you.

Thank you. Our next question will be from the line of John Kernan with TD Cowen. Your line is now open.

Excellent. Thanks for taking my question, and congrats on a nice first quarter. Daniella, can you talk to the path back to that high-teens adjusted EBITDA margin? Previously, it was in the 20s. Obviously, there’s been a lot of changes in inflation since that original target came out, but you are giving us pretty specific detail on some of the selling expenses related to inventory and fulfillment costs. Just wondering how we think about – should think about the sequencing of that path back to high teens adjusted EBITDA margin?

Definitely. So, based on what we see today, we believe we have significant opportunity to drive EBITDA margin expansion over the longer term. And so, in 2023, as we spoke about, we’re seeing pressure from a few factors. First, we’re seeing transitory gross margin pressure, couple of hundred basis points due to the combination of promo mix and also freight related to sell-through of inventory that we purchased last year. Secondly, we’re seeing approximately 250 basis points of selling pressure mostly from excess storage fees. Moving to 2024, we do have the bulk of the $16 million to $18 million in incremental costs related to the fulfillment enhancement project, but excess storage fees are going to largely go away. So, net-net, we will see some more pressure in fulfillment in 2024 versus 2023. All that being said, our core business is high-margin, replenishment-driven, highly profitable, and cash-generative in a normalized state. There’s a lot of short-term impacts that are creating pressure, but the fundamentals of our business remain strong. And over the longer term, we continue to expect gross margin to approximate 70%, we’re going to aim to keep marketing expense at around 15% of net sales. Selling is going to normalize in 2025 and beyond. And looking further into the future, we do expect as we accelerate growth, that G&A is also going to be able to leverage from where we are today. So, ultimately, our goal is really to ensure that we’re making the right decisions for the long term while sustaining a strong profitability profile today, and we feel really confident in our ability to do so.

Excellent. That’s helpful. And maybe, Trina, you could talk to customer acquisition and retention costs. Daniella has just said you plan on keeping marketing expenses relatively flat as a percent of sales. So, I’m just curious in terms of near-term marketing trends, it looks like marketing expense per active customer ticked down a little bit from where it was and year-over-year. So, just curious what you’re seeing from a marketing spend and an acquisition and retention perspective. Thanks.

Yes. I mean, I think it’s been really encouraging. You’ve seen our customer acquisition trends over the last number of quarters, and it’s incredibly strong. I think the similar – same dynamics that we’ve always talked about remain to be true. How do we acquire customers? It’s mainly word of mouth, right? Every fixed customer is a walking billboard, acquiring that next customer for us. That’s a trend that drives our efficiency to the levels that you’ve seen over the last number of years. And that’s what – over 60% of our traffic is organic. And the second thing that we have that many don’t is the replenishment nature of our business. And so, almost 70% of our customers are repeat that we’re not acquiring for the first time. And so, those two dynamics really drive what we would call a paradigm shift, right, flipping that paradigm on its head, where as we grow, as we scale, we can become more and more efficient. Now, if we wanted to drive that way down, we could. But our goal is to keep to Daniella’s point our marketing at around 15% as a percent of sales, which as a direct-to-consumer almost 100% digital company, many haven’t been able to pull that off. So, we are proud of our ability to keep acquiring customers at such a – at efficient level and do it while bringing more and more healthcare professionals into the FIGS family.

Got it. Thank you.

Thank you. Our next question will be from the line of Brooke Roach with Goldman Sachs. Your line is now open.

Good afternoon, and thank you for taking our question. Trina, I was wondering if you could start by talking about the drivers of the record reactivation rates that you saw in the quarter. What was it that brought those customers back to the brand now? And are they engaging in any specific types of new innovation or promotional activity that they didn’t in the past?

Yes. I think it is a function of our repeat frequency has been extended a bit. And so, you’re seeing that show up, where customers are spending a little bit more time between purchase and it’s not that they’re leaving FIGS, right? They’re just spending a little bit more time before they come back and shop again. And I do think it’s a function of a few things. It’s definitely a function of our innovation. We launch products every single week, and our customers are coming back. It’s driving traffic. It’s driving height. Its driving excitement and bringing our healthcare professionals back to engage with us. A bit on the promotion side, we’re seeing more customers engage on that level, just given the environment and given what’s happening from an inflation perspective, but we feel really good as macro pressures subside over the long run that given how much bigger our base is, given how much customers we’re acquiring. The position that we’re going to be in as we – as the macro normalizes over time, we’ve never been in a stronger position, and it’s really exciting to see and you see it in the customer acquisition. You see it in the reactivation, and you see it as we’ve seen as the frequency is normalizing as well.

Great. And then maybe a question for Daniella. Daniella, I think you mentioned airfreight recapture as a driver of some of the outperformance in gross margin in the quarter. Can you quantify the benefit that air freight was in 1Q? And then perhaps help us understand what airfreight quantification is embedded within this updated 69% gross margin guide for the year. Thank you.

Yeah. So, as expected, we are anticipating to see better air freight utilization year-over-year. It was one of the benefits year-over-year from the first quarter. It was also – came in better than we expected. And so, continuing to drive lower air freight utilization. As a reminder, we’re not bringing in really much product at all inbound via air freight today. But what we are doing is selling through product that was air freighted in 2022, that’s already in our balance. So, inclusive in our gross margin guide of just below kind of 69% for the full year. We’ve incorporated that continued benefit that we expect to see from lower air freight utilization over time.

Great. Thanks. I’ll pass it on.

Thank you. Our next question will be from the line of Matt Koranda with ROTH/MKM. Your line is now open.

Hey, guys, good afternoon. Thanks for taking the questions. Just maybe I want to see if I could get at the reengagement from a different angle. Curious maybe could you quantify or maybe just qualitatively discuss how big is the pool – the lapsed active users that you have to pull from. And what does that mean for marketing efficiency on a go-forward basis?

So, it’s definitely been – what we’ve been seeing, as Trina spoke to before, is a record number of reactivations. And so, we have people in our customer base who as kind of those frequency trends expand and as we see a little bit of an increase in days between purchase, they’re waiting longer, and we see them coming back in month 13, 14, 15. Definitely, on the marketing side, we’re targeting those customers through our personalization strategies and focused on providing them with messaging and content to drive them back to the site. And so, it’s definitely an opportunity for us in the future to continue to drive more of those reactivations over time.

Okay. Great. And then just one more on the inventory if I could. You mentioned 25 weeks is still the goal toward the end of the year. Just curious if you could maybe kind of level set us on what to expect in terms of cadence to get there. Is it just a steady drop through the rest of the year? Are there going to be chunkier periods around some of the promotions for like Nurses Week or whatnot just kind of level set us there?

So, as we discussed, the first quarter was a peak in terms of inventory, and we do expect it to decline from here. And a pretty kind of just sequential decline. There isn’t a ton of lumpiness and we’ve planned kind of our future purchases to get to the 25 weeks of supply by year-end, but there isn’t a lot of choppiness to speak to before then.

Okay. Great. I’ll leave it there. Thank you.

Thank you. Our next question will be from the line of Bob Drbul with Guggenheim. Your line is now open.

Hi. Just two questions for me. The first one is, are you seeing any change in competitive pressures? And then the second question that I have is, can you elaborate a little bit more on international takeaways, what you’ve learned so far with the growth that you’re seeing? Thanks.

Sure. Thanks, Bob. So, as we think about competition, if competition didn’t exist, we wouldn’t be doing our jobs, one of my favorite lines. But competition is healthy, right? It’s a sign that you’re doing something worth copying and I really believe that. But I also believe there’s only one spot for first place and FIGS plan to remain in that seat for decades to come. How are we evolving to stay ahead? How do we plan on remaining as the number one brand in the healthcare apparel space? First and foremost, product integrity and innovation. We’re light years ahead of our competition in terms of product development, research, innovation, and production. We’ve been working with our healthcare professionals for 10 years on fit, style, functionality, and we have the manufacturing partners so that we can stay agile, increase the extraordinary. Secondly, and this point is something that I’m passionate about. We have the scale. We are 10 times larger than our closest D2C competitor, and our marketing budget alone is bigger than the revenue. Third, we’re profitable. And what this means is that we have resources to continuously get better, faster, smarter across all areas of our business. And finally, we have brand love, intangible brand love. We’ve mentioned this on calls, but this is what we’ve built for 10 years. It can’t be replicated in a day by any competitor. Our relationship with our community is deep, and our brand trust is unmatched. We’re the only brand in the healthcare apparel space that has tapped into what it means to be a human in healthcare. As it relates to international, I think you saw the growth in the quarter. We feel really great about our progress in the markets that we’re in, and we’re going to continue to localize across markets, and you’re seeing that as we talked about translations actually coming this month, for non-English-speaking countries, and that’s something that we’re super excited about. But localization isn’t just about translation. It’s also about how we communicate with our healthcare professionals in and around the world in the way in which they want to communicate and engage. And so, this is a big priority for us, and we’re just getting started. We talk about penetration. We have 10% market share in the U.S. We have, I mean, a fraction of that internationally. And so, we have a huge runway ahead of us, and we’re excited to keep connecting with the 118 million healthcare professionals outside of the U.S.

Thank you.

Thank you. Our next question will be from the line of Dana Telsey with Telsey Advisory Group. Your line is now open.

Good afternoon, and nice to see the progress. As you think about the supply chain, I think either Daniella or Trina, where you mentioned it in diversifying the supply chain. How far along are you? What will it mean go forward, whether in terms of how you manage inventory or the cost? And then with the fulfillment enhancement program, what should we be looking for as guideposts along the way that will lead to improved margins? Thank you.

Thanks, Dana. As it relates to the supply chain, we’re really taking advantage of this opportunity to lay the foundation with new supply partners and where are we focused? We’re really focused, first and foremost, in innovation, right? That’s our lifeblood. We’re also really focused on flexibility, on scale, consistency, and reliability and we are in the process of diversifying further not just around country, but also around how we can make the best product across our layering system and deepening our partnerships with the suppliers that we already have and building new partnerships around the world. As it relates to the fulfillment project, we are on our way to – in terms of this initiative. And I think, Daniella, I don’t know if you have any other points on that.

Yes. I think for the fulfillment enhancement initiative, it’s really going to enable us to drive flexibility and reliability and ultimately improve the customer experience. It’s also going to set the foundation for us for future distribution expansion as we think about potential distribution centers in the East Coast or internationally in the future. And so, over the long run, it’s going to enable to drive efficiency and scale, but there’s also a lot of benefits as it relates to the experience that we’re providing to our customers, and we’ll be sure to update you along the way as we get deeper into that project.

Just one last thing. On the non-scrubwear, the rate of growth there versus the past, anything to note on non-scrubs in the lifestyle product and looking at that this quarter or go-forward? Thank you.

Yes. I mean, I think our view around our non-scrubs business is that they’re all tied together. We have a really holistic and intentional view around the entire layering system. It’s meant actually to be layered. So, our categories aren’t really competing with one another. They’re really complementing each other. So, they add value by being part of someone’s uniform. So, really, as you think about the uniform, it’s not I know we break it out, scrubs and non-scrubs, but it’s all supporting each other. So, if you’re wearing FIGS, you’re most likely not just wearing a set of a FIGS scrubs, you’re also wearing our underscrub, or you’re wearing our vest or our jacket. And our hope over time is that you’re wearing the full layering system on shift, off shift, head to toe. And so, you might see some of these categories fluctuate in growth, but our goal is that the remaining a healthy percentage of the total, and that’s the intention, and that’s what you’re seeing. The only other thing I would add is that as much as we’re known – we’re known for our scrubs, right? And I think we’re getting known over time, especially with our repeat customers, they’re coming back in their second, their third, or fourth purchase for these other pieces. Our first-time customers, 85% of them are buying just the scrub. So, that’s kind of why you’re seeing that growth rate in the quarter.

I would also – just to add, as a reminder, Dana, last year, in Q1 2022, we saw at a normally high kind of non-scrubber percentage as we were out of stock on some of our core scrubwear products, and we also had a really strong new balance launch. So, there’s a little bit of year-over-year comps going on as well.

Thank you.

Thank you. Our next question will be from the line of Rick Patel with Raymond James. Your line is now open.

Thank you. Good afternoon, and congrats on the strong execution. Can you talk about replenishment trends? I believe at the time around the IPO, it was around 98 days, but it’s about a month longer now. Does guidance assume that this trend has stabilized, or does it reflect frequency continues to stretch longer?

So, as we discussed, frequency continues to be a bit pressured by the macro environment, but that days between purchases has stabilized from the last quarter. I think it’s important to note that a portion of kind of the increase that we’ve been seeing here is that we are reactivating more customers and as customers extend their purchase life cycle. And that metric, that higher reactivation that has customers coming back after 12 months, and that’s just inherently going to drive this metric up. I think from here, there’s a lot of opportunity for us to drive frequency higher over the longer term. As we’ve discussed, we’re really focusing on product innovation and expanding our layering system. We’re taking steps through our marketing strategies to drive higher engagement through personalized messaging through tailored communication, as well as really amplifying product education and value. And so, we’re still early in these initiatives. So, we’re not factoring in a lot of upside into our guide from here, but a lot of opportunity for us to improve this over the long term.

Can you also talk about the outlook for AOV? What’s the right way to think about the puts and takes as we consider the mix of business versus your expectations for consumer behavior during promotional times?

So, for AOV, as we, I think, spoke about, we expect it to be kind of flat over the remainder of the next three quarters. And I think what’s really great is we’re continuing to see higher UPT and we’re continuing to drive that metric higher as customers expand and purchase more into our layering system. However, that is going to be pressured in the near term by a lower AUR as we are seeing that higher promotional mix. But over the long term, it gives us confidence in our ability to continue to drive UPT and ultimately, AOV up from here in the future.

Thanks very much.

Thank you. Our next question will be from the line of Brian Nagel with Oppenheimer. Your line is now open.

Hi. Good afternoon. Congrats on the nice progress. So, my first question – my first question and just a bit of a follow-up. But with regard to shipping costs. So, we saw the gross margin track above plan in Q1 and then the update to the gross margin guidance for the year. But as we’re getting now further path to shipping disruptions broadly, I mean, how should we think about the ultimate sort of say, benefits to FIGS? If either – you mentioned before, Daniella, less reliance on air freight but then also just lower shipping costs, either through 2023 and then maybe some commentary beyond 2023.

Yes. So, as we discussed, we are seeing lower inbound rates for both ocean and air, and we’re also driving better air utilization. In 2023, we’re continuing to sell through inventory that was largely brought in, in 2022 at higher ocean and air freight rates. And so, net-net, we’re seeing a benefit in air freight utilization year-over-year. That’s still being offset a bit by higher ocean freight rates. But as we look further into the future, looking into 2024, we do think there’s a couple of hundred basis points of gross margin pressure, both from freight, but also promo mix that we’ll be able to recapture over the long term.

That’s very helpful. And sorry about the background noise if you can hear it. But the second question I have and also a follow-up. So, with regard to the better customer engagement you’ve seen recently, is that more as you’re looking at this happening, I guess maybe one, if you could help size it. I mean, how big of a shift has this been? And then also, is it – do you think it’s more tied to timing? Or are you seeing this correspond well with some of these new products you’re launching on the innovation side?

Yes. I think as you think about, what’s happening with the environment more broadly for consumers and then I’ll talk a bit about what’s happening within our community that are both impacting healthcare professionals. So, as you know – and economists are telling us the macro environment continues to be challenged. Consumers have spent their stimulus checks and they’re moved through their savings, layoffs are happening across industries, consumers are in save mode and inflation is creating additional pressure. Those factors are impacting our healthcare professionals, but on the other end, there are dynamics within the healthcare environment that give us a lot of confidence and, you know, about our community’s buying behavior. And what we’re seeing is that the healthcare community is reenergized and they’re getting back to work. Since 2020, our customer has been fighting a global pandemic that’s taken a meaningful toll on them. And the COVID fog is lifting and we’re entering a new era of medicine. We’re talking to healthcare administration and hospital CEOs every day. And there has been an uptick in hiring, in wages, and staffing levels. And zooming out, over the long run, there’s going to be – continue to be an incredible need for healthcare professionals as they are the fastest-growing job segment and they’re an incredibly attractive customer base due to a number of factors, including stable income, the wages as we discussed, their jobs are incredibly purposeful, and as discussed, it’s a stable and growing industry. So, that’s kind of the – zooming out the bigger picture. And then to your point, everything that we do from a product standpoint, from a marketing standpoint, that’s kind of layering on top of how the environment is evolving over time.

Thank you. I appreciate it.

Thank you. Our next question will be from the line of Noah Zatzkin with KeyBanc Capital Markets. Your line is now open.

Hi. This is [indiscernible] on for Noah. Just a quick one for me. Could you expand more on the upcoming retail presence? Any early updates around that first store that’s opening in 3Q? And I guess, how are you thinking about an omnichannel approach to business longer term and maybe evaluating any other potential future locations?

Thanks for the question. We are on track to opening our first permit store this fall. As we’ve seen with our pop-ups and activations that we’ve had in the past, our healthcare professionals are obsessed with FIGS and love experiencing us in person. They want to feel and touch and experience our products. They want to learn more about our brand. It’s why we have five-hour lines around the block with any physical activation or pop-up that we’ve done. And so, we’re really excited. We’re really excited that we’re opening our store and we have a plan to open more in the future. We’ll give you more details on all of that going forward. But this is the future, right? The fact that we only have one channel today with over $0.5 billion in net revenue, layer on top of our DTC channel, international layer on top teams, layer on top retail, there is so much opportunity in front of us.

Thank you.

Thank you. Our next question will be from the line of Adrienne Yih with Barclays. Your line is now open.

Thank you very much. Just two quick questions. I guess the first one is on extended sizing. I’m wondering if you can share with us kind of visibility on how much it has aided in new customer acquisition. And then, Daniella, my question is really on modeling the $16 million to $18 million fulfillment in 2024, was going to be spread pretty equally over 4Q and 1Q, should we expect now that in 1Q and 2Q of 2024? And then I guess the 250 of excess storage fees, should we just assume that that is negated kind of to wash between moving the total expense into 2024, offset by the 250 excess storage this year? Thanks so much.

For the release to extended sizing, this was a long time coming. We’re super excited to bring 3XL to 6XL to our healthcare professionals. We’re seeing 5% of new customers engaging in our extended sizing. And we’ve only really incorporated a few styles. So, we’re really excited to bring it across our assortment and continue to give our healthcare community not just a few of our core styles, but all of them in addition to the full layering system, that’s really the goal, and we’re going to do that over time. But FIGS is for everybody and everybody, and that was our campaign, and it’s – we are the most inclusive brand in the world where we aim to be because that’s what this brand is all about. It’s for all healthcare professionals, and all awesome humans wear FIGS.

And as it relates to your questions on the fulfillment enhancement initiatives, so we are now expecting to incur the bulk of the costs of the $16 million to $18 million in incremental expenses in 2024 and that will be spread mostly in the first half with some trickling into the third quarter as well. And the 250 basis points, basically, from the move of the fulfillment enhancement project into 2024, we are seeing a 50 basis points benefit in 2023, the differential between the 300 basis points of incremental expense we spoke about in our past call and the 250 basis points we’re now seeing in excess storage and fulfillment expenses.

Thank you. There are currently no additional questions registered in the queue at this time. So, I will now pass the call to Trina for closing remarks.

Thank you so much. Thank you all for joining us. We look forward to updating you on our next call and hope you have a great night.

That concludes the FIGS First Quarter Fiscal 2023 earnings call. Thank you for your participation. You may now disconnect your lines.