FIGS, Inc. (FIGS) Q2 2023 Earnings Call Aug. 06, 2023

Here is a summary of the FIGS earning report.

Trina Spear - Co-Founder and Chief Executive Officer

FIGS reported robust results in the second quarter, highlighting a 13% net revenue growth from the previous year.
This was fueled by a 21% surge in the active customer base, enhancing the firm's leadership in the healthcare apparel domain.
The quarter's margin adjustment was 13.7%, surpassing the expected 9-10% margin.
An impressive free cash flow of 29 million was reported.

Inventory levels have reduced, aligning with the goal of having around 25 weeks of supply by year-end.
The core strength of the business is apparent, with the non-seasonal nature of healthcare uniforms generating positive cash flow.
Future prospects appear promising for expanding the community within the U.S., exploring international opportunities, and stepping into retail.

Product innovation is pivotal for the company.
With deep insights into healthcare needs, products are designed to meet these specific requirements.
Scrubs contributed to over 80% of the net revenue in this quarter, and 40% of customers bought a non-scrub item.
Partnerships, like the one with New Balance, underscore the company's commitment to providing unparalleled products tailored for healthcare professionals.
The focus continues to be on developing new offerings, expanding the product range.

Engaging with the healthcare community is of paramount importance.
Successful campaigns, like the Nurses Week and Innovate Beyond Your Imagination, have resonated well, resulting in a 21% growth in the active customer base from the previous year's Q2.
The efficient marketing strategies ensure a steady 15% spend of net revenues annually.
Efforts to enhance personalization in marketing and user experience on platforms are ongoing.

A notable initiative is the FIGS Advocacy Hub, an online platform allowing the community to stay updated and voice their concerns on significant policy changes.
This advocacy effort is further amplified by a vast base of two and a half million active customers.

On the international front, there's a 52% net revenue increase compared to the previous year's second quarter.
The recent forays into Mexico, the Philippines, and Saudi Arabia have shown promising outcomes.
As the international footprint grows, the emphasis remains on balancing revenue growth with profitability.

The team's business segment, catering directly to healthcare institutions, is witnessing rapid growth.
The evolving healthcare landscape is driving a demand for more specialized and individualized care.
FIGS aims to be the partner of choice for healthcare professionals, offering them unparalleled quality and style.
An updated technology platform for teams is slated to launch later this year, supporting this segment's growth.

In the retail strategy segment, FIGS is set to inaugurate its first permanent store in Century City.
Next year, a second store in Philadelphia (a prime location) is planned due to its prominence in healthcare education and a significant number of healthcare professionals.

To sum it up, the second quarter has been promising for FIGS.
A dynamic executive team, combined with unique product offerings and strategic engagements, has positioned the company for long-term success and growth in the healthcare apparel sector.

Daniella Turenshine - Chief Financial Officer

Second quarter results surpassed expectations.
Net revenue growth led to profitability with strong free cash flow generation.
Notable progress was made toward normalizing inventory to prior year levels.
Despite external challenges, the resilience of the business is noteworthy, with a focus on long-term strategies and disciplined expense management.

Second quarter overview:

• Net revenues increased 13% to 138.1 million from 122.2 million in the same period the previous year.

• Active customer growth stood at 21%, marking significant new customer additions from both domestic and international regions.

• There was success in reactivating past customers.

• Average Order Value (AOV) rose by 5.5% to $115, mainly due to a change in product mix and expansion of product layers.

• Gross margin was 69.5%, a slight decrease from 70.6% in the previous year, mainly attributed to product mix changes and increased duties.

Expenses:

• Selling expenses accounted for 24.4% of net revenues, a rise from 21.9% the prior year, influenced by warehouse storage costs and international duty subsidies.

• Marketing expenses constituted 15.1% of net revenues, a decrease from 17% the previous year.
  The marketing approach shifted to hosting multiple smaller events, fostering deeper community connections.

• General and Administrative (G&A) expense was 25.2% of net revenues, up from 23.9% previously, largely due to investments in personnel.

• Net income was 4.6 million, with an Earnings Per Share (EPS) of $0.02, slightly down from the prior year.

The Balance Sheet:

• Cash equivalents and short-term investments amounted to 185.3 million.

• Inventory stood at 167.8 million, showing progress in normalization and protecting brand health.

• Positive cash flow from operations was recorded at 29.4 million.

Forward Guidance:

• Net revenue expectations remain unchanged, while the expected EBITDA margin for 2023 has been raised, reflecting better-than-anticipated performance in the year's first half.

• Sales for the third quarter are projected to show minimal growth, with an expected gross margin of about 69%.

• For the full year, net revenue growth is forecasted between 5.5% and 7.5%.

• Gross margin for the year is expected to surpass 69%.

• Adjusted EBITDA margin for the full year 2023 is anticipated to be between 12.5% and 13.5%.

• Capital expenditures for 2023 will range between 24 million and 26 million, focusing on fulfillment, software investments, and retail infrastructure.

In closing, continued investment in long-term strategies is planned, leveraging a robust balance sheet and consistent free cash flow.
Confidence remains in achieving high adjusted EBITDA margins in the future, capitalizing on growth opportunities within the healthcare apparel sector.

A Q&A session followed.

Anne Chapman

Dynamic Trader Twitter
Dynamic Trader LinkedIn

Let's go trade!