Thoughts from Meetings w FIGS = Function / Innovation / Goodness / Speed (Store Visit Pics)
Friday 11/14, we hosted meetings with FIGS management: Sarah Outred (CFO) and Tom Shaw (SVP Investor Relations).
We love (a) hosting meetings with interesting companies and (b) thinking up acronyms, so here we go … Function, Innovation, Goodness, Speed. We note function in the product and digital-native business model. We see innovation in fabrication, category extensions (outerwear, under scrubs, footwear), and outbound sales force addition. We feel the appreciation for core “awesome human” healthcare professional goodness as a core devotion of the brand. Lastly, we perceive speed in adapting supply chain to tariffs and opportunities for adjacencies. We think shorter-term TAM questions will be replaced by longer-term margin / ROIC appreciation.
There is a clear and compelling case here for the soundness of the FIG’s core DNA as it is rooted in authenticity, innovation, and a devotion to the core customer. Durable brands (independent of price point) need that DNA. FIGS has this in spades. Investor questions about portability of the brand to bigger TAMs are part of the conversation, but management neither dismissed those concerns nor sounds rushed to disprove them – both very healthy signs to us.
The community hub (or store) opening strategy is a consistent question. We think a thoughtful (perhaps up to 25 total) footprint of 1500-1800 sq ft stores makes sense. Stores are profitable in year one; being opened near major medical campuses (we toured the just-opened Upper East Side store on 69th & 3rd in NYC – the third to open after Philly and LA). With options on colorways and customization, we can envision stores near NIH, Stanford, Cleveland Clinic and many more. 85% of healthcare professionals are required to buy their own apparel. We note more than 30 hospital centers with over $3 bn in annual net patient revenue. The rationale for opening stores includes 60% of customers still prefer in-store purchasing; 40% new-to-brand capture at opened locations (vs. 30% overall); and FIGS sees this rollout as limited and a “learning phase”. FIGS focus on core customer includes 600 brand ambassadors, lobbying for healthcare workers in DC, and mental health advocacy for their customer base.
Additional notes:
TAM concerns, pulled forward demand, and slower revenue growth? These are clearly part of the investor conversation these days. We see this as unlikely to persist over time. FIGS benefited from COVID and now must manage the business lapping against a multi-year period of strong tailwinds (stock up). But there remains a large opportunity within the category and substantial adjacencies. According to BLS, there will be 24 mm healthcare and social assistance workers in 2034 (up from 22.5 mm in 2024). We see adjacent industries that could benefit from elements of FIGS fit and function in scientific/technical (11.6 mm), accommodation/food services (14.7 mm), transportation/warehousing (6.9 mm) = a 2.5x relevant TAM bagger just from potential customers. Heck, we wished we had the anti-microbial FIGS fabric on our Amtrak ride home from meetings.
FIGS has 2.8 mm active customers with $209 average spend. As FIGS develops SKUs for other parts of the wardrobe (outerwear, etc) we can see a very long runway of 7-10% annual revenue growth opportunity. We suspect long-term revenue growth could be meaningfully higher over the next decade. Adjacent / extension categories just within apparel represent substantial opportunities as 16 core styles represent 80% of revenue. This suggests, to us, FIGS true TAM could be much bigger than discussed as they gain permission to enter more categories.
While FIGS move fast in managing tariffs and decisions, they seem unrushed to turbocharge their revenue growth (which we see as a good sign).
FIGS has called out 440 bp margin shift in 2024/2025 from tariffs – we do not expect incremental challenge relative to that guidance as they’ve navigated the balance between Vietnam and Jordan over time.
The average customer owns 15 items and FIGS notes a higher frequency is emerging (fewer days between purchases).
FIGS delivery of an elevated look, function, and comfort for healthcare professionals provides a substantial long-term tailwind due to the consumerization of healthcare (concierge care, Botox, laser, fertility, weight loss, urgent care).
FIGS noted digital-native competitor brands do not have the proprietary fabrication and likely do not have the requisite sourcing flexibility and speed to navigate tariffs. We believe some of the new entrants have lost momentum.
Talent accumulation continues. FIGS new Chief Product Office and Head of Design have been added with lululemon and Arc’teryx experience.
Growth initiatives include: (1) outbound team sales – moving from reactive to proactive; (2) product line expansion – new leadership driving full wardrobe vision; (3) FiberX premium line – addressing specialized needs; (4) retail optimization – learning ideal store count and format; and (5) international expansion – currently 15% of revenue.
Operational focus includes: (1) tariff mitigation – production shifting and cost negotiations; (2) elective pricing – maintaining quality positioning; (3) promotion pullback – improving baseline demand; and (4) frequency improvement – reducing days between purchases.
Financial variables include: (1) gross margin management – offsetting 440 bp tariff headwind; and (2) capital efficiency focus – maintaining high product margins while the distribution center is only at 60% of capacity.
