Good afternoon, everyone, and thank you for joining today's FIGS Fourth Quarter Fiscal 2024 Earnings Conference Call. My name is Reagan, and I'll be your moderator today. All lines will be muted during the presentation portion of the 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, Tom Shaw, SVP of Investor Relations. Tom, you may now proceed.

Good afternoon, and thank you for joining us to discuss FIGS' fourth quarter and full year 2024 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer, and Sarah Oughtred, our Chief Financial Officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunities 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. 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 and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation we issued today. With that, I would now like to turn the call over to Trina.

Thanks, Tom. Good afternoon, everyone. Thank you for joining us today. Before we get into our results, I'd like to take a minute to talk about the wildfires we experienced in January. Los Angeles is our home. So this crisis impacted us on a particularly deep and personal level. Like so many in L.A., there are people within the FIGS community who lost their homes and are under incredible stress as they try to put their lives back together. This is also a reminder of how extraordinary our awesome humans are. For most of us, when crisis hits, we go into self-preservation mode. The opposite is true for the healthcare community. If you were a healthcare professional when the fire struck, you spent 12, 16 or even 24-hour shifts caring for everyone else, even while your world was in utter turmoil. Sticking to our roots, we did everything we could to support our community through this crisis. In addition to other relief efforts we contributed to, we immediately set up a dedicated e-mail alias where healthcare workers affected by the fires could reach out for assistance, whether they needed scrubs, PPE, meals, childcare support or financial aid. As part of our effort, we responded to over 1,500 messages from healthcare professionals, donated over 9,200 FIGS and delivered over 2,500 meals. No one sacrifices more of themselves than healthcare workers. And this is why the work we're doing at FIGS to celebrate, empower and serve them is so important. As we reflect on the past year, we are proud of the important strides that were made as we continue to define what it means to serve the healthcare community. We measure this quite simply across three measures: one, how we bring great innovative products to address customer needs; two, how we…

Thanks Trina. I'll start with some of the drivers for our strong fourth quarter performance where we experienced better-than-planned results across most of our P&L. I'll then provide our first look at 2025 and some of the key considerations during the year. Finally, we will open up the call for questions. Looking at Q4, net revenues increased 5% to $151.8 million above our implied outlook for the period. Returning customer traffic and purchase frequency powered our growth for the period with frequency notably remaining positive for the third straight quarter and strengthening relative to recent trends. This positive trend was tempered by customer acquisition trends. Additionally, we are seeing several churn dynamics play out. While this includes a higher rate of customers falling out of the active base, it also includes a higher rate of lapsed customers coming back to the brand, which we believe is indicative of some of our marketing and product initiatives throughout the year. AOV decreased 1% to $116, primarily reflecting lower units per transaction, offset by a higher rate of nonpromotional sales. Overall, our active customers for the trailing 12-month period increased 3% year-over-year to $2.7 million, while net revenues per active customer decreased 1% to $208. Looking at revenues by category, scrubwear increased 2%, representing 76% of net revenues for the period. Similar to last quarter, we saw a positive trends in both our limited edition and core styles, which were supported by a strong slate of color launches throughout the period. However, performance remained somewhat constrained as we lapped our prior year efforts to move through older products and colors. Non-scrubwear increased 13%, representing 24% of net revenues. While we were prudently cautious with our Q4 planning following last quarter's performance, we saw outperformance in both footwear and underscrubs during the period. Growth…

[Operator Instructions] Our first question comes from Brooke Roach of Goldman Sachs. Your line is now open.

Good afternoon and thank you for taking our question. I was hoping you could speak to your plans to maintain and reengage lapsed customers as you move through a promotional reset, which typically does come with a period of higher churn. You also spoke a little bit about a lower trend of new customer acquisition. Can you speak to your plans for marketing to those customers so that you can reaccelerate that acquisition trend? Thank you.

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

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

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

Great. Thanks so much. I'll pass on.

Thank you. Our next question comes from Brian Nagel of Oppenheimer. Your line is now open.

Hi, good evening. So a couple of questions. I mean, first, I know we somewhat discussed this in the prepared remarks, but I just I guess I want to understand better. Just help me explain -- or help me understand better the kind of the dynamic between your fourth quarter, a nice beat, sales acceleration or profit acceleration, but then more downbeat guidance for '25. So what's the bridge there? And then I guess the way I'm asking with that, too, as you look at that initial guidance, I mean, recognizing it's early in the year, it's a fluid backdrop, et cetera. But is the guidance you outlined for '25 consistent with what you're seeing in the business now? Or is there some degree of conservatism based on that versus what we saw in the fourth quarter?

Great. Hi, Brian, so in terms of the fourth quarter, so we went into the fourth quarter with prudently cautious guidance as we came out of Q3 that did miss our expectations. As we went through Q4, we did see some performance gains on color, but we did see a softer Black Friday, Cyber Monday performance. And so the beat really came in December as we had additional color launches this year, and that's where we really started to see some traction on our business as usual days. And we did see outperformance in our December promo that happened very much at the end of the quarter. And so as we go into 2025, our guidance does reflect a few different dynamics. So one, we have been seeing headwinds and lower growth rates in our active customer base. So playing that forward, there is the potential for that to decline. And then we also are making a shift in promotion. And so you can expect that, that will have a few points headwind on growth for 2025. And I think those are the main pieces that bridge you from some outperformance in Q4 to how we're positioning 2025. And what we're putting in front of you here is a forecast that we feel confident executing against and continue to play that out over the year.

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

Great. So how we're thinking about those building blocks is, first and foremost, the US business is the biggest part of our business, and it has been declining. And so our efforts here and the investments that we are making are really about reinvigorating growth in our US business, and that will be really important for the long-term algorithm. I think within that, we've also seen declining growth rates in our active customer base. So it's really important that we reinvigorate growth there as well. So those are two important blocks just in terms of driving the upside ahead of where it has been, along with continuing to build out our retail, international and teams channels. And then as that flows through the P&L, it's really going to be that top-line expansion that's really going to help us leverage our bottom-in costs and help us reinvest into the growth for future.

Got it. Okay. Appreciate it. Thank you very much.

Thanks.

Thank you. Our next question comes from John Kernan of TD Cowen. Your line is now open.

Hi. Good afternoon. Thanks for taking my question.

Thanks, John.

You’re welcome. Sarah, how should we think about both selling and G&A? You gave some color earlier in the prepared remarks. Selling obviously has the several hundred basis points of supply chain fulfillment costs in fiscal 2024 in it. How does that unwind, so to speak? And then within G&A, what are the drivers of G&A outside of stock-based comp in fiscal 2025? A – Sarah Oughtred: Yes, for sure. So as you -- we have the transitory costs related to our DC transition this year. Those should normalize into next year. That does get partially offset with just our higher fixed costs from operating a much bigger and state-of-the-art facility as well as our increased mix of international and the impact of that on our selling costs. So still some leverage overall year-over-year expected, but there are still added costs related to operating this new facility. And then as we go into G&A, I mean, first, on marketing, so we will have a lower rate of marketing, which is recovery of where we invested into Olympics, but then now reinvesting back into the business to really drive top-line growth. And then into the other components of G&A within our total and our people costs, we do have the run rate of investments that we've made into -- from 2024, and we'll continue to invest in resources to support build-out of our teams needed to grow the business. And so there will be an impact there. And then I did outline already the stock-based compensation. So that will go down by $12 million year-over-year. And so just something to consider is 13 -- I'm sorry, it was $13 million year-over-year that it's going to go down. And so something to consider is that while the adjusted EBITDA guidance is flat year-over-year, because the add-backs into the adjustments are lower this year, our EBITDA is actually going to be up year-over-year. And so that is supported by the reduction in stock-based comp with the other factors that I've outlined here.

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

Yes. So, for international, so we have been steadily increasing our proportion of international and expect that, that will continue into 2025. International is profitable for us. We do have a different cost profile with some added costs as it relates to duty and shipping and marketing, but still really happy with the profitability there. And in terms of non-scrubwear, so about each year, we've been increasing the proportion of that business by about 1 point, and we would play forward that same expectation for -- as we go into 2025.

Got it. That’s helpful. Thank you.

Thanks John.

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

Hi Trina, hi Sarah. I hope your homes and everyone's homes are okay in L.A. and that everyone's all okay.

Thank you.

On the product side, Trina, you had mentioned about other categories and the opportunities. As you think about reactivating customers, where are you on that journey? And what should 2025 be like in terms of those new product category opportunities? Or is 2025 more a year of execution? And then just following up on that, any tariffs, China, how are you preparing? And is there anything in the guidance for tariffs? Thank you.

Thanks Dana. I'll start with the product question, and then you can take the tariff, Sarah. So, Dana, we're seeing really great signs of normalization in actually our repeat frequency and our kind of business as usual days, which is great to see. And that is a function of awesome style and color launches. And you saw our Isabel Wide Leg last year, that was incredibly successful. Our scrub legging, which I mentioned, our rib and waffle underscrubs are new additions to our underscrub category. Those are really taking off. Our float jacket. I don't know if you have our float, Dana, but you should try it out in the outerwear category as well as our new 3447 through our partnership with New Balance. So, we're really focused across the layering system. What are health care professionals wearing to work, at work, from work, on-shift, off-shift, head-to-toe. And building out these fabric platforms across category is where we're focused. It's where we really built a lot of foundation in 2024, and there's more to come in terms of building out these platforms in 2025. And so very much focused on testing new fabric platforms, testing new products and then leaning in and doubling down on what's working. And so that's what you'll continue to see throughout the year. It's all about obviously, innovation and execution and balancing those two as we go. So, I'll pass it over to Sarah.

Yes. So, on tariffs, we have minimal direct exposure to China on our finished goods. We have some indirect exposure from partners like New Balance that would have exposure to China. We have no exposure to Mexico or Canada. So, overall, immaterial exposure to the current tariff plans.

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

Yeah, sure. So the promotional adjustments will be more outweighted impact in 2H. From an adjusted EBITDA perspective, Q1 will likely be our lowest, Q4 next lowest and then Q2, Q3 should be fairly consistent.

Thank you.

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

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

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

And then can you talk about where some of those incremental marketing investments will be focused?

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

Thank you.

Thank you. Our next question comes from Matt Koranda of ROTH Capital. Your line is now open.

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

Yeah. So it's really about shifting away from the transactional approach that was needed to reduce our inventory balance more towards strategic promos that celebrate health care professionals and more custom strategies along the funnel. We've made really good strides in the past two years in working down our inventory position that did require certain promo levels to achieve that, which we can shift away from now because we are in an improved inventory position. So we're still going to be having promos that celebrate our health care professionals, but we can't pull back in other areas. We excited that we're seeing great strength in our business as usual days. And so we want to continue to support that. And overall, it's really about solidifying our long-term brand positioning, which we think is very important.

Okay. That makes sense. And then just on the overall healthcare apparel industry, I'm curious for 2025, what do you think scrubwear demand should look like for the year, overall? I guess you guys have been talking about and others have talked about sort of an extended replacement cycle on scrubs for the last couple of years. But it does seem like we should be getting a refresh over the next year or so that should help with some growth. So what's embedded in your expectations just for the industry overall and for healthcare professional sort of behavior?

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

Operator, we’ll take the next question, please.

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

Hi, good afternoon. I wanted to start on non-scrubs in the quarter. I think you mentioned it came in at 24% of the business. In the past, I think the highlighted target was to have an 80-20 split longer term. Is that still the goal here? And then within the gross margin guide, I'm more curious about, are you planning the mix to be similar to what we saw in 4Q? Or what are you assuming there?

Yes. So just something to keep in mind is that each Q4, we do see that proportion of non-scrubwear increase. But on the year, we were still 80-20. And that proportion has been increasing about 1 point each year. So we would expect that to continue forward where we will likely see a small increase in the proportion of non-scrubwear and then that will over-index in Q4 of next year as well. And sorry, can you just -- you had a question on -- you got it. Yes. Okay. So what was your question on gross margin, sorry?

I think that answers it because it just -- it shifts longer term, just how that backs into the gross margin guide basically for the year. But I think I can piece that together. So I did have a second one just on the sizing initiatives you talked about. I know it was aimed for January 2025, but you highlighted some further calibration needed on the fit side. You'll be marketing the change in the back half of 2025. So from where we were 3 months ago, maybe just where you identified some of those additional opportunities that led to your decision to further calibrate the assortment and push out some of that new messaging.

Yes. I mean I think fit is super important. As you know, we've talked about it a lot. It's really important for our healthcare professionals of all sizes, and it's important to look at where we are. We've made a lot of progress with our fit efforts, but we really want to ensure that we get it right. And so we're taking a bit more time and recalibrating a few pieces of it. And so we'll be coming out in the second half of this year with the full transition and related messaging. And despite this timing push, we think the extra work is the right move. And ultimately, we really want to get this right for all of our new and existing health care professionals. Q – Ashley Owens: Appreciate the color. Thanks.

Thank you. Our next question comes from Adrienne Yih of Barclays. Your line is open. Q – Unidentified Analyst: This is Angus Kelleher [ph] on for Adrian. Thanks for taking our question. I'm going to ask a follow-up on Ashley's question and ask if you could provide some more details on the non-scrubwear category seeing as it posted a quick recovery, as you pointed out. Just what drove that? And if there's any exciting launches planned on that front that you could share? And finally, how are the in-stock levels trending, particularly for the footwear category? Thank you.

Yes, sure. So in Q3, we did have the impact from footwear performing below our expectations, and that was partly related to supply on footwear. That was rectified in Q4, and we did see outperformance versus our expectations in the footwear category, and that was part of what drove our beat within the quarter as well. And so as you move into Q4, you have two factors happening as it pertains to non-scrubwear. So we did see the return of footwear in terms of its penetration. And then we also saw good success with our loungewear with our waffle and ribbed under scrubs and outerwear. And typically, Q4 has a higher penetration of non-scrubwear. So it will be quite high in Q4. And as we go into 2025, Q1, that will moderate. But overall, we expect there to be a proportion shift to a slightly higher proportion of non-scrubwear versus the annual of 2024. And in terms of what we were excited about within footwear in the quarter and more recently, we have launched the 3447 with the Zipper, and that saw a good success in the quarter and something that we're excited about going forward, along with our continued excitement around our 3447, which is our proprietary designed shoe with new balance for healthcare workers. Q – Unidentified Analyst: Great. Thank you. I’ll pass it on.

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

Hi, everyone. Thanks for the question. Maybe to go a little higher level. We've seen some conflicting signals on consumer spend more broadly. Interested to hear what are you seeing in the health of consumer? Anything to read into kind of the 4Q strength there? And any key differences by income to call out OOG. Interested to hear how that's evolved over the past few months and into 1Q. Thank you.

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

That's helpful. And then on the inventory, you mentioned pulling back on promotions partially due to the better inventory position. Would you characterize -- are you back to normal inventory levels? And if not, how far are you? And what's the path to return there now that you're stepping back from promotions a little bit?

Yes, sure. You did cut out there. So I'm going to go with just giving you some color on inventory and then you can let me know if there was something that I missed. But our inventory was down 3% year-over-year, and we've been spending the better part of two years to really bring down that inventory position. So we are down 35% from our highs, which is great. And to get there, really require discipline within our buys as well as promotions to exit that inventory. So we are at a better level. I think there's still pockets of inventory that we can continue to work with, but we are buying with more conviction buying into our new innovation, including formats and continuing to buy into our color that has been really successful. So what we outlined in the script is that we expect the growth rate of inventory to moderately exceed our revenue expectations.

Great. That’s it. Thank you.

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

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

Thanks, Trina. Just to clarify a question that Dana had around EBITDA margins throughout the year. As we indicated, our EBITDA margin would be the lowest in the first quarter. You should see it step up in the second and third quarters with the strongest year-over-year improvement in the third quarter, but the highest EBITDA margin will be planned in the fourth quarter. So I just want to make sure we clarify that. I'll pass it back to Trina.

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

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