Good afternoon. Thank you for attending the FIGS Second Quarter Fiscal 2025 Earnings Conference Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions] And I would now like to pass the conference over to your host, SVP of Investor Relations, Tom Shaw. You may proceed.

Good afternoon, and thank you for joining us to discuss FIGS' Second Quarter 2025 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; 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 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. 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. And now I'd like to turn the call over to Trina.

Thanks, Tom, and good afternoon, everyone. Following our strong top line performance in Q1, we were encouraged to see momentum continue in the second quarter, where solid execution drove our largest revenue quarter in our history and powered overall results ahead of expectations. We place the health care community at the center of all we do, and this unrelenting focus is coming through across 3 highly successful and interrelated areas. First, we have strengthened our product merchandising efforts through clear assortment architecture, strategic newness and continued improvements in fit and function. Second, we have created some of our most impactful marketing to date that has resonated broadly across the health care community and driven deeper engagement. And third, we have strategically repositioned the business away from broader-based promotional periods, driving more productivity and intentionality to our overall business. This high level of execution is generating success in the foundational parts of our business, including the United States, our e-commerce channel and within core scrubwear. We also believe these successful efforts are being amplified as we move further past the COVID overhang towards a more normalized purchasing and replenishment backdrop. Looking at Q2, net revenues outpaced expectations with 6% growth, supported by several high-quality measures that build our confidence for the balance of the year. From a category perspective, our scrubwear posted an 8% gain, which was the highest growth in the past 7 quarters. This is a great example of where our integrated merchandising efforts are coming through, and we are energized by what we are seeing here as our collective efforts across newness, fabric, color and fit continue to come together in the seasons ahead. From a customer perspective, growth in our active customers was supported by solid gains in both acquisition and returning customers. We also saw strong…

FIGS' strong second quarter results were above expectations on both top and bottom lines, highlighting the ongoing momentum of our efforts with product, marketing and promotional repositioning and demonstrating the successful execution of some of our targeted expense measures. Net revenues increased 6% year-over-year to $152.6 million, above our outlook of approximately flat performance for the period. We were particularly encouraged by strength in some of the core elements of our business, including improved trends in our overall scrubwear category across core colors and styles, strong growth in our business-as-usual selling periods and the overall growth in our domestic business as we reached a new quarterly sales record in the U.S. As planned, we also continue to execute on a more intentional pullback with our promotional strategy in 2025. While this creates headwinds year-over-year, we believe this sets us up for long-term success, and we are pleased to see more productivity during this year's more limited offerings. Looking further at our trends, AOV increased 4% to $117, primarily driven by higher average unit retail due to product mix and lower return rates. On the customer front, while we continue to see some impact from our promotional changes this year, we were excited to see improving acquisition trends and the ongoing success of reengaging returning customers. Overall, our active customers increased 4% year-over-year to 2.7 million, while net revenues per active customer eased less than 1% to $208. By category, scrubwear grew 8%, representing 83% of net revenues for the period and exceeding our expectations. As Trina mentioned, we have been effective across our product merchandising efforts, driving momentum to our core and supporting productive new colors and style launches. We also progressed on our fit efforts with key styles starting to be fully updated during Nurses Week. Non-scrubwear decreased 3%,…

[Operator Instructions] The first question is from the line of Adrienne with Barclays.

This is Angus Kelleher on for Adrianne. I wanted to ask about AOV and product innovation impact. So AOV increased 4% in Q2 and has shown steady improvement over recent quarters. Can you rank order the drivers of this recovery in terms of how much is promotional strategy, product mix or new product launches? And then on that note, what's your outlook for AOV progression for the rest of 2025?

I can start and then, Sarah, if you want to jump in. Thank you, Angus, for the question. I think it's important when you think about AOV, which -- it was our second-best quarter. We hit $117, up 4%. And when you think about product innovation, this isn't really a function not only of being the most -- what we believe to be the most innovative company in the space, it's also a function of being a uniform company. And so a lot of what's driven our success is that health care professionals are coming to FIGS for their uniforms and then they're coming back to us over and over. They're buying our newness; they're buying our limited edition products. And then in addition, they're replenishing their core scrubwear. And so that's a really great dynamic. In that AOV, you're seeing a lot of people kind of engaging with higher-priced products that AUR is really driving that, and that's also really exciting to see. In terms of ranking the pieces of AOV, Sarah, if you want to jump in on that?

Sure. So the most favorable impact came from product mix shift, and then we also had some favorability in returns.

The next question is from the line of Dana Telsey with Telsey Group.

Congratulations on the nice progress. As you think about the engagement you've had with the customer, and certainly, we're seeing it now in some of the metrics that you mentioned, Trina, with the active customers, both new and existing, how are you thinking about the newness go forward and the pricing given the tariffs coming in with the normalization that's returning to the health care professionals and their buying habits, how are you planning for pricing? Is part of it the tariffs? Is part of it the innovation that you're delivering? How should we think about the go forward?

Sure. I can start. I think when you think about our success, it's really a result of a lot of the execution that we've been discussing over a long period of time, and we're now seeing the results of our efforts. That execution can be seen across the business. And it really starts with -- and you mentioned it product. It starts with product and marketing. Those are our 2 North stars. And we've made significant investments in these areas, and we're starting to see that investment pay off. So on the product side, we're delivering the best products that meet the needs of our health care professionals. Like I was saying, the core is really resonating and continues to resonate. We've made steady improvements on fit. We continue to be on our journey on fit, and it's -- we're seeing a lot of great feedback as well as function. And that's what we're known for, being the highest quality, most comfortable medical apparel in the world. And on top of that, we're kind of -- we have really delivered a very clear assortment architecture that enables us to be strategic when it comes to newness and when it comes to color drops and style drops across categories. So that's been really exciting to see. And then on the marketing side, we're really combining what we're doing as it relates to storytelling around product and around our awesome humans and kind of combining that with the product and seeing incredible success. Sarah, do you want to talk about the pricing -- in terms of the pricing, I think we talked last quarter about pricing is kind of our last resort in terms of how to offset tariffs. It's something we've been extremely thoughtful about. And as you know, Dana, health…

The next question is from the line of Brooke Roach with Goldman Sachs.

I have a follow-up to that last question on tariffs. Sarah, could you quantify the annualized impact from tariffs that you expect, both on a mitigated and unmitigated basis? It sounds like pricing will be very strategic. But will that pricing be a global price increase or a local price increase? And when are you thinking about contemplating implementation of that price?

Yes. So we've shared that our tariff impact for 2025 is going to be 150 basis points, and that's based on the rates that are in effect today. So 20% for Vietnam, 15% for Jordan and 30% for China. That is consistent with what we had shared last time, but there have been some movement within that. So we did see the reduction in China rates. So even on a very small mix, it's had some positive impact. And then while the rates for Vietnam and Jordan are higher than what we had guided to previously, the later effective date limits the incremental impact. And we've also continued to optimize our sourcing mix. And then how you can think about the phasing of that, we continue to expect the basis point impact of tariffs to grow progressively throughout the year. And we haven't shared what that impact will be for 2026. I think something for you to consider is that the vast majority of our COGS is subject to tariffs and 85% of our sales are to the U.S. So I think with that, you can probably come up and drive what a reasonable range of annualized impact would be. And we're actively in the work to mitigate that. Trina shared some of those mitigating actions and shared our pricing philosophy. So at this point, our guidance for 2025 does not reflect any pricing impact. We're going to continue to work on our mitigation strategies. And as Trina said, we will wait and really consider the right time for any particular pricing.

The next question is from the line of John Kernan with TD Cowen.

Congrats on nice quarter. I got one for Trina and one for Sarah. Trina, just within the guidance for revenue, it seems like there's a decel implied in both average order value. You addressed some of those points earlier. But how should we think about active customers in the back half of the year? It seems like you're pretty excited about some of the engagement you've had with existing customers and customer acquisition. So just trying to think how we should model that going into the back half. I can take that one.

Yes. So we've guided to revenue of 0% to 2% in Q3. And then depending -- that gives you a range of where we would be at for Q4 with our low single-digit guide for the year. And so while we've seen great progress in a lot of our metrics, keep in mind that the second half of the year will have the largest impact from our pullback in promo. So that will have some impact on our trends in terms of customer acquisition and in terms of our order value as well. So you can see that you can plan that you won't see the same growth rates in those metrics that we've seen in Q2, just given the pullback in promotion, but really excited for what we see underneath that promotion on our business as usual.

Got it. And then maybe just a follow-up on selling expenses. Obviously, really nice leverage this quarter, over 300 basis points. There's still a ways to go to get back to that 2023 kind of selling expense as a percent of sales. Just curious how you're thinking about the leverage on that line item into the back half of the year? And is there a specific time frame when you think it's reasonable to get back to that 22.9% that you generated in -- for the full year that you generated in 2023?

Yes. So really excited with the progress that we've made in this area. The progress has come faster than what we expected given that we've really ramped up our efforts there and have been really great at delivering on that. So we've seen some of those savings, both within shipping and within fulfillment. and we'll continue to realize the benefits that we're seeing and continue through with what has been realized. So these are sustainable savings because they come as a result of actions that we've taken that will be permanent over time. And so we're feeling increasingly confident that we will be able to return our selling rates back down to that 2023 level by next year. So we're well on our way and excited that we're going to get there faster than what we had originally thought.

And then just one follow-up on that. The revenue growth will be a little bit slower in the back half. Does that imply there'll be a little bit less leverage on the selling line?

Yes, that's correct.

The next question is from the line of Ashley Owens with KeyBanc Capital Market.

This is Chris on for Ashley. So I want to just talk about -- I mean, it's great to see the growth in scrubwear this quarter. I'm wondering if you could just expand a little bit on the softness in non-scrubwear and maybe if we can expect any rebound from apparel or lifestyle launches in 3Q.

In terms of non-scrubwear, there is some noise in the quarter. We did have less non-scrubwear launches in Q2. And so when you're looking over any 90-day period, there's going to be some noise. But when you zoom out, our stacked 3-year growth rate on non- scrubwear is 35%. So we know non-scrubs is a healthy business that health care professionals love. We are a lifestyle brand, outfitting health care professionals to work, at work, from work, on-shift, off-shift, head to toe. And so we're going to continue to really be the brand for them throughout their life. And we also know there's really a huge opportunity to go even deeper. As just one example, if you look at our underscrub business, it really is one fabrication, the Salta underscrub for women, the Mercado underscrub for men. And so there's much more that we're excited to build out here. And without giving away our plans, that's not just -- it's not just within underscrubs. It's within footwear, within outerwear, within actually our compression sock business. We're expanding into more franchises, and we're excited to kind of keep building the portfolio and really giving our health care professionals more of what they love.

And then just one follow-up on share repurchases. So obviously, none this quarter. But I'm just kind of wondering maybe as we move throughout the rest of the year, like how you're balancing choosing to repurchase versus maybe growth initiatives and if there's any areas you're looking to be more opportunistic.

Yes. So as we said in our remarks at this time, we're focusing on deploying our capital and prioritizing that towards growing the business. We've set out on that this year, and we've been really successful so far, as you can see from our results. So we know that, that investment is working for us. And we're going to preserve our balance sheet just given some of the uncertainty. That said, we will continue to be opportunistic, but we will be more conservative given where we were at previously.

The next question is from the line of Brian Nagel with Oppenheimer.

Congrats on the continued progress here. Nice quarter. The question -- I guess my first question, a little bit longer term, but as the business is recovering here, we're starting to see this clear now over the last few or even several quarters. I guess how should we think about the -- what's -- what should be a healthy growth rate, top line growth rate for FIGS? And then within the context of that, to get there, what still needs to happen? We know -- like I said, we've seen the business start to recover here, but still not maybe where can we get to and what has to happen to get it there?

Yes. So we're not going to give any guidance at this point on specifically what our growth rate is going to be, but I think we're pretty clear on what our growth algorithm is. And first part of that was really returning our core business to growth. And so we're on our way to do that, as you can see with some of the results that we've produced in terms of our U.S. business returning to growth, reinvigorating the growth within our new customers. as well and in scrubwear as well. So we're on our way there, and there's more room for us to continue to grow within the core of our business. And then we have our opportunities within our growth drivers, within teams, international and our retail hubs. And so we've set out what those strategies are, and we're still early days in those avenues. And so we'll see that, I think, ramp up more so in 2026 and onwards. And we're seeing good proof points that what we're doing to drive growth there is working. And we'll need to continue to invest in building out the resources, the people, the capabilities behind those. And we've been doing that already, and it's working. So we will continue to do that and look forward to continuing to drive growth in the business going forward.

That's helpful. I appreciate it. And my follow-up question is on tariffs. And look, recognizing FIGS is unique. There's really not much in the way of direct competition. But the question I'm going to ask is, you seem like your strategy towards tariffs is solidifying nicely. Are you seeing tariffs cause any type of disruptions within your competitive set either positively or negatively for FIGS?

No. I think you know how I feel about this question, Brian. We try not to look left or right. We're really focused on our own business and continuing to lead the industry from a product standpoint, from a marketing standpoint, from an execution, customer experience standpoint. But you can do some digging and you'll see that we're pretty well positioned in the space.

The next question is from the line of Matt Koranda with ROTH Capital.

Can you hear me now? Sorry about that. So I guess I wanted to take a look at the sales progression in the second quarter. It looks like the growth came in quite a fair bit ahead of the flattish guide that you gave for the quarter. So I just wanted to hear about how the quarter progressed in May and June. Just any comments you have on July and how that sort of fits into the second half guide that implies kind of flattish sales?

Yes, definitely. So our guide of flat on the quarter was really reflecting that we were comping over a strong period of growth last year that was driven by newness. And we did say that the flow of product launches this quarter would be a little lighter relative to other quarters. And we were just being prudently cautious amid the current environment. And what we've seen is we were able to overcome all of those headwinds. We've seen really great overall growth in our baseline business as usual days. And we saw progress towards the end of the quarter as it was related to some of our color launches and newness and really seeing all the things that Trina had spoken about earlier that's really supporting our product and marketing really start to turn on. And so as we enter into Q3, we're seeing the trends from Q2 continue. But keep in mind that Q3 will have a much bigger impact from the pullback in promo than what we saw in Q2. So while those trends are there, there's going to be a larger headwind into Q3, and that's why our guide of 0% to 2% is lower than where we were -- where we finished off in Q2.

And then maybe just a little bit more on the pullback in promos in the second half. Can you talk about like how that shows up? Is it sort of less sample sales and site-wide promos? Is it sort of the same number of promotional events with shorter duration? Is it lower depth of discount? Like what's the right way to think about sort of the posture there?

Yes. I mean it's really all of the above. And so we've really shifted to have our site-wide promos be more specific to events that celebrate health care professionals. So for example, in the second quarter, we still did our Nurses Week promo. In Q1, we still did match day. And right now, we're doing our back-to-school, which is large for health care workers as well. And so we have pulled back on some of the site-wide promos that were more generic in the past. We've also taken the time to shift some of these promos to be more sample sale focused, so clearing out older inventory rather than the site-wide off of everything. So we're just being more strategic with the way that we're delivering it, the timing and the length. So there's a broad variety of shifts that we are making in each of our quarters this year.

And the only thing I would add to that is just the reason we're able to pull back is because our baseline days are really strong. And that's why we really feel great about the health of the business over the long run, protecting the brand, ensuring that we are doing everything we can to deliver the best product and engage our community in meaningful ways. And so really feel good about the long- term health of the business.

Next question is from the line of Rick Patel with Raymond James.

Congratulation on strong execution. I did have a question on inventory. So did it reflect any pull forward given the uptick in costs related to tariffs? And I think you touched on investing in certain areas of the business as well. Just some additional color would be there on inventory.

So our inventory was up 14% on a dollar basis. A portion of that is due to tariffs related to receipts that came up. If you look at it on a unit basis, we are up 8%. So the differential is really from a mix shift in the cost base towards higher cost goods. You can think about that as some of our higher cost scrubwear as well as outerwear and shoes as an example. And then once you look at that 8% growth in units, yes, that is definitely being driven by in-transit as we did preposition some inventory to get ahead of the original tariff date. So some of that is pull forward.

And then can you just help us understand the international growth rate? How much did you benefit from FX in the quarter? And what kind of currency benefit do you have baked in for the back half?

Yes. So we haven't shared the specific impact of FX, although it was not a material impact. So keep in mind that international is 15% of our business. So it wouldn't be a large impact on overall growth rates. We're really excited with where international finished at a 20% growth rate. on the quarter, which was up from 16% that we delivered in Q1. International is still at 15% of the business and really seeing good growth rates and that growth coming from Mexico, Europe, Middle East and Latin America. And that is really healthy growth coming from both new customer acquisition as well as returning customers. So really happy with the progress that we're seeing as broad-based growth across many regions and across many different customer metrics in international.

Our final question comes from the line of Nathan Feather with Morgan Stanley.

Some macro headwinds implied in the full year guide. I just to get a sense of what you're building in across the range in 3Q and the full year? And then is there something you're seeing recently that causes you to build on that or more just being prudent given the volatility [indiscernible].

Yes. So I would say that the majority of the pullback in growth rates in 2H versus where we have performed in 1H is due to the expectation of a larger impact from pullback in promo. So that's really the greatest piece of it. And I would say that our revenue guide accommodates for various different scenarios, and there is some we are being prudent. The environment is still uncertain. So we feel like that we are giving appropriate guidance based on what we see in our business right now.

And I would just add, from a macro standpoint, health care jobs are growing 3x faster than the overall job market. And there's been, as you know, a long-running staffing shortage within health care, doctors, nurses, et cetera. So the demand for health care professionals is really high. We've also talked about this COVID overhang and the idea that health care professionals stocked up, right, during the pandemic, and that caused them to slow their purchasing behavior. Fortunately, we're continuing to see signs that we're getting further away from the pandemic and that overhang is easing, and we're entering a more normalized purchasing environment. And so in some of the metrics that we're looking at that is showing this shift, we talked about AOV growth almost matching our record quarter last quarter. We're seeing acquisition trends trending positively. We're seeing where customers are coming back to us. And we're seeing accelerated growth in the U.S. in scrubwear and in e-commerce. So this gives us really a lot of reasons to believe that we're starting to operate in a more normalized environment that our -- the health of our customer, health care professionals is really strong, and we're really hopeful about the future of our community and of our business.

That's really helpful. And then I just want to excited to see community hub rollout expand in 4Q. Just to get a sense, I know you've been in a little bit of a test and learn phase with the first 2 community hubs. Given the expansion here, is this kind of just an expansion of that test? Or should we expect maybe a more consistent increase of community hubs as we go into '26 and '27 as you start to lock down the operating model?

We are opening more community hubs. So we talked about Houston is coming. We just announced for the first time ever, New York City and Chicago are coming and much more to come. So we're really excited by being in person with our community. We continue to see nearly 40% of our customers in our community hubs are new to the brand. 30% of those acquired customers are coming back and becoming omnichannel customers shopping online. And so it's really exciting. We're seeing really strong incrementality in the markets that we're in. And we're excited. We're excited to go to more markets, go to more cities, engage both online and offline. We're really learning what's working for us in terms of format, location, how close to health care institutions, being close by the best largest health care institutions in the country. So couldn't be more excited about where we're going. We've also learned a lot in terms of the design, and we're making a lot of tweaks to future community hubs. So it's a very exciting time, and thank you for the question.

That was our last question. So I would now like to pass the conference back for any closing remarks.

Thank you all for joining us. It was a great quarter, and we look forward to seeing you next time.

That concludes today's call. Thank you for your participation and enjoy the rest of your day.