FIGS - NYSE

Good afternoon. Thank you for attending today's FIGS First Quarter Fiscal 2025 Earnings Conference Call. My name is Jaylen and I'll be your moderator for today. All lines will be muted, during the presentation portion of the call with an opportunity for questions-and-answers at the end. I'd now like to turn the conference over to our host Tom Shaw, the Senior Vice President of Investor Relations. Tom, you may proceed.

Good afternoon, and thank you for joining us, to discuss FIGS' first quarter 2025 results, which we released this afternoon. It 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, and thanks for joining us. FIGS is off to a great start this year, with Q1 revenues up 5% year-over-year and outperforming our expectations. As we indicated on our late February earnings call, we started the quarter on a positive note, and we were able to sustain this momentum later in the period. While we are clearly in a dynamic macro environment. What is most important for FIGS is that we saw continued signs that scrubwear trends are starting to normalize from the COVID overhang the past couple of years. This included a number of encouraging trends during the period. We were particularly pleased to see strong gains during our normal full price days, while also performing better than planned, during our reduced set of promotional days. AOV growth shifted positive for the period, and reached a record level for the company. At the same time, we saw ongoing momentum in our reactivations, bringing back customers who had not bought from our brand in over a year. These measures supported a return to positive growth in the U.S., which is pivotal for driving sustained growth. Bottom line performance also exceeded expectations, driven in large part by our top line improvement. Adjusted EBITDA margin of 7.2% came in above our 5.5% to 6% target. Even as we heightened our focus on making strategic investments across the business. Our conviction in these investments is unchanged, given the opportunities we see to accelerate growth, and drive greater contributions in key areas like international, our B2B teams business and retail. Adding to these results, we continue to be fortified by our strong balance sheet. We believe our cash balance, cash flow generation, and debt free structure give us the ability to stay on offense with our strategies, while also solidifying our financial position against the macro uncertainties that have grown across the overall market. As we look ahead to those uncertainties, and how we plan to operate. We think it is incredibly important, to highlight what makes the big story and brand different. At the highest level, the healthcare industry backdrop remains compelling and resilient, supported by its essential nature in our economy, U.S. healthcare jobs are the backbone of our society, and are expected to grow nearly 3x the rate of the overall job market over the next decade. We have seen similar pacing in recent months, including in April where the broader healthcare sector added nearly 60,000 jobs during the month, representing nearly one-third of all jobs added. At the same time, wages have begun to improve following strong gains during the pandemic in the more recent period of underperformance. Within healthcare, the uniform of the community is scrubs, a replenishment category that centers around a tight range of highly productive styles. As we have discussed, we believe healthcare professionals stocked up during COVID, creating an overhang that contributed to slower growth the past two years. But as we would expect in a replenishment business, those same healthcare professionals need to keep buying their uniforms, ultimately leading to a normalization of consumption. This is all part of the FIG story. We changed the game in the scrubs market in 2013, breaking through an industry of ill-fitting, commoditized non-technical goods, to become the brand that is synonymous with quality, durability, style and comfort. Our category leadership begins at the yarn level, and how we differentiate across both fabric and construction, to create products that are consistently superior and premium in the market, ultimately redefining expectations. Changing the game also requires ongoing thought leadership in the space. While copycats concentrate efforts on playing the fast follower game or the color drop game, we are focused on driving new innovation, like our recently introduced FORMx fabric, exceeding our own high bar on superior fit, bringing on-trend silhouettes to the market like scrub leggings and wide-leg scrub pants, and ultimately building a uniform layering system never seen before in the healthcare apparel industry. Importantly, this is much more than just an opportunity to take share. It's about the opportunity to create and redefine the market. And perhaps what differentiates us the most is how we celebrate, empower and serve our community. We have opportunities to elevate the important work and needs of healthcare professionals in ways that have real and lasting impacts. Our year-long focus on Where Do You Wear FIGS is a great example, including our impactful work during International Women's Month. Showing how much our message resonated within our community and beyond, our Women's Month film went viral. Our film and campaign captured the experience of female healthcare professionals in ways that, truly made them feel seen, leading the campaign to have an astonishing 100 million impressions. Collectively, this is not easy work, but it is what defines brand leadership in this community and drives our passionate following. No one else does this with this kind of scale and this kind of impact. Ultimately, it gives us the opportunity to bring new healthcare professionals into our community, build more connections and create more reasons to choose FIGS. Measuring our recent impact and progress, I would like to spend some time on our recent customer engagement as well as our efforts to expand our reach to more customers. The past few months have been an incredible stretch of the year for our community. Each March, graduating medical students learn, which residency programs they will be matched with. Match Day provides a great example of how FIGS is on the ground and in-person during monumental moments for young healthcare professionals, and we plan to extend the range of student experiences across celebrations and schools in the years to come. This is truly an authentic way to drive engagement, and create a long-term pathway into the brand at such an important moment at the start of their medical career. Next up is our Scrubs That Don't Suck campaign. The goal is simple: allow healthcare professionals to get rid of their old itchy, scratchy, ill-fitting scrubs and upgrade to FIGS, aka Scrubs That Don't Suck. This is not only a huge opportunity to acquire new customers, it allows us to do so responsibly by recycling those old scrubs into products that are far more useful. Following a successful test last year, we are excited to now make this program permanent. We think this is another powerful differentiator for our brand, and we're encouraged with our recent activation in Houston, which tripled the volume of donations seen at last year's corresponding event in Philly. I'll have more on Houston in a moment. Finally, we are in the midst of one of our most important events of the year, Nurses Week. This week-long event puts our nursing community in the spotlight to celebrate their immeasurable contribution to society. We've always gone big for Nurses Week, but this year we're setting a new bar. We were excited to extend our Where Do You Wear FIGS campaign with a new film focused on nurses that, has quickly become viral itself. Like our Women's Day film, it's our goal to have every nurse watch it and feel truly seen and valued. We then elevate this campaign by featuring it across a range of outlets. From connected TV to premium out-of-home placements, so everyone gets the message that it's nurses, not just athletes and celebrities, who should be inspiring the next generation. And this is just the start as we have many other surprises that will be playing out over the next week. Having impacts like these are amplified by evolving how and where we go to market. Last call, we highlighted the need to accelerate our investments to better reach new and existing customers, and we are well underway on these efforts. Let's start with our vast international opportunity, where over 80% of global healthcare professionals are, yet they represented only 15% of our net revenue in 2024. To date, we have taken an efficient centralized approach to our global expansion, which has served us well given our e-commerce focus and ability to leverage a common digital platform. We have then been able to analyze these markets to prioritize and calibrate further investments to drive outsized impact across localization, awareness and engagement. Our fundamental approach here is unchanged in 2025, though you will see us harness technology, to expand our regional approach to new markets, while also investing heavier across our localized efforts in our more seasoned markets. Later this quarter, we also plan to officially debut FIGS in Japan. The Japanese market is highly attractive with over 5 million healthcare workers, a highly concentrated population in urban markets, and a consumer focused towards products that offer both fashion and function. Given the complexities of entering this market, we're investing heavier out of the gate, with a goal to support more meaningful growth in 2026 and beyond. Similar to the U.S., we believe we can differentiate the brand and win, by supporting the healthcare community in unprecedented ways, though these are actions that will take time to scale. In addition to these foundational investments, we're also on track to enter the South Korean market in the second half of this year. Next up is the TEAMS business. As we have indicated, we estimate 15% of the scrubs industry has been driven by institutions buying for their teams. At the same time, we have seen a broad commercialization of health care, meaning new pockets of opportunity are rising, within concierge medicine, med spas and other similarly modern ways to be cared for. Think about some of the clinics you may interact with, dermatology, veterinary, cryotherapy, fertility, et cetera, all addressing specific needs in new ways. These are fast-growing spaces that are increasingly looking to drive premium experiences, both for employees and for patients. While these are obvious opportunities, we also see the ability to outfit sales reps who work side-by-side with healthcare professionals. Large institutions that are ripe for modernization and internationally, where we are just beginning and we believe the mix could be even higher. Commanding well under 10% of our business today, we are evolving our team's approach so we can actively go after these pockets of opportunity, many of which require relationships and solutions that cater to individual needs. We previously announced the hiring of a dedicated leader for this business in January, and she has been actively calibrating the business for growth. This includes the hiring of our first outbound team members during Q1, and we're excited to have already booked our first outbound orders, with one of the largest healthcare companies in the world. It also includes more tactical initiatives, including tech investments to drive simplicity and scale, marketing investments to develop TEAMS assets and drive awareness and inventory investments to meet a wider range of buying needs. Most importantly, this is a business that we own, and that positions us to expand our competitive moat in the market. Finally, we remain bullish on the role our Community Hubs can play. Our work shows that over 60% of healthcare professionals want to try or feel a product before purchase, which means that having a physical presence is critical. As a barometer of impact from our first two stores, we continue to see nearly 40% of our customers at these locations are new to FIGS, and that includes our home market in L.A., where we already have the highest brand penetration. Additionally, 30% of acquired customers from these locations go on to become omnichannel purchasers. We remain committed to testing and investing in this nascent channel. This includes efforts that are very much aligned with our brand in terms of building community engagement. We have already hosted a range of events year-to-date, including Match Day and wellness sessions during Nurses Week that extend our larger efforts to have a local feel and impact. As we hinted earlier, we are excited with our efforts in Houston during the quarter, and are thrilled to announce our next Community Hub location there at Rice Village. This location puts us just blocks away from the Texas Medical Center, the world's largest medical complex. With over 100,000 employees across 61 institutions, the center supports more than 10 million patient encounters during the year, and includes some of the nation's top-rated facilities like the MD Anderson Cancer Center. We are also working to finalize details for two additional locations we plan to open by the end of the year. Before handing the call over to Sarah, I would like to provide some color on how we are navigating this evolving operating environment, starting with tariffs and some perspective on our supplier base. The majority of our production today comes from Jordan, followed by Vietnam and then very small contributions from China and Peru. The recently imposed tariffs create risk for us, and given the speed at which global trade policy is evolving, it's important to pinpoint where they will ultimately land, and how much they will increase our cost over time. That said, we believe we are uniquely positioned with suppliers for three reasons. First, the majority of our assortment is non-seasonal. Second, our products are replenishment driven. And third, our mix is centered around high-volume, low SKU count, core scrubwear. This is how we've managed to be so nimble in making meaningful production moves in recent years, effectively giving us cross-sourced capabilities with a strong set of partners. So even though we're not immune from cost pressure as a result of tariffs, we do have built-in advantages, as we weigh our future actions. Finally, as we work to mitigate the impact of tariffs, it's important to emphasize that we will never compromise on the key to FIG's success. We are a product company, first and foremost, and the quality of our product is a big driver of what truly sets us apart. Before FIGS, our community had to settle for bad products and a bad experience. We changed all that. And regardless of any short-term trade uncertainty, we're going to keep moving forward. We have put ourselves in a position to invest in our growth and to serve our community at the highest level, and we're going to take advantage of that strength, because that's what our community deserves, full stop. So in terms of our long-term prospects, we remain extremely confident. In terms of how the tariffs will impact us over the short-term, as Sarah will outline, the financial impacts are challenging to forecast. So we're laying out what we think is a reasonable set of assumptions, and outcomes based on what we see today. Ultimately, this impacts our expected range of adjusted EBITDA margin outcomes for the year, but gives us a framework to make thoughtful brand decisions that allow us to continue to strengthen our position. We entered the year with a clear focus, on how we will continue to serve our community and an understanding of what we needed to lean into from an investment perspective. This will require added discipline as we adjust to a range of outcomes, but remain instrumental in our approach. We are fortunate that with our category leadership, our competitive advantage and a strong financial profile, we are in a position to both take and create share to widen our competitive moat. Great brands are able to uniquely harness macro challenges, and we will continue to boldly lead and define this industry going forward. With that, I'll turn it over to Sarah, to review the quarter and our updated financial plan.

Thanks, Trina. FIGS first quarter results underscored some of the optimism we had coming into the year, executing well across our range of sales channels, product and color launches and calendar events. Net revenues increased 5% to $124.9 million, above our outlook of approximately flat performance for the period. We saw strong customer reception to new color and product during the quarter, and we're even more encouraged with how we performed during what we call our full-price business as usual days. And while the planned reduction of promotions did have an adverse impact, revenue performance exceeded our expectations during those events. AOV increased 3% to $119, a new high for the brand, primarily driven by a higher rate of full-price sales, and higher average unit retail due to product mix. From a customer perspective, we saw encouraging overall results despite the promotional changes. Our customer composition was supported by our successful ongoing efforts, to bring lapsed customers back to the brand, along with better stabilization of both acquisition and churn metrics. Overall, our active customers for the trailing 12-month period increased 4% year-over-year to $2.7 million, while net revenues per active customer eased less than 1% to $208. Looking at revenues by category, scrubwear increased 5%, representing 80% of net revenues for the period. We continue to see traction with our limited edition styles, as well as a good balance of color performance between new launches and core offerings. Non-scrubwear increased 4%, representing 20% of net revenues. Reported growth was particularly impacted by the change in our promotional strategy, given the heavier inventory positioning last year, as well as efforts to work down inventory in certain categories for future reinvention. Despite these headwinds, we continue to see strong double-digit overall growth in footwear and underscrubs, which have both been areas of high demand and opportunity for the brand. By geography, U.S. sales increased 3% to $106 million. This is the best domestic performance we have seen in the past six quarters, with particular strength from repeat customers. International sales increased 16%. While this was a step down from the growth rate in Q4, that period included an outsized favorable year-over-year benefit from a duty reclassification. We remain pleased overall with several key measures, including strong traffic, stable conversion, and like the U.S., strength during non-promo days. Gross margin for Q1 contracted 130 basis points to 67.6%, trending in range with the past three quarters. Results were roughly in line with expectations, though do reflect higher promotional performance than anticipated. Compared to last year, mix continues to be a headwind, as expected, primarily driven by the mix within our scrubwear category, including the impact of limited edition styles. Additionally, we incurred higher freight expenses given our action to mitigate shipping issues in the Red Sea. Partially offsetting these pressures, we saw the overall benefit of fewer promotions during the period. Our selling expense for Q1 was $32.7 million, representing 26.2% of net revenues, compared to 23.9% last year. We continue to see the impact of higher cost structure of our new fulfillment center, which we are actively optimizing and scaling. We also incurred higher outbound shipping expenses given our investments to improve domestic shipping times, and due to our higher international sales mix. Marketing expense for Q1 was $18.2 million, representing 14.5% of net revenues, which was unchanged from the prior year. G&A for Q1 was $33.8 million, representing 27.1% of net revenues, compared to 30.2% last year. The decrease in G&A expense rate, was due to meaningfully lower stock-based compensation expense, partially offset by higher depreciation related to assets purchased for the fulfillment center. Combining these items, our adjusted EBITDA for Q1, was $9 million with an adjusted EBITDA margin of 7.2%, compared to 10.9% last year. Notably, this margin performance came in ahead of our Q1 outlook of 5.5% to 6%. Net loss for the quarter was $0.1 million, or diluted EPS of $0.00, compared to net income of $1.4 million last year, or diluted EPS of $0.01. On to our balance sheet. We finished the first quarter with net cash, cash equivalents and short-term investments of $251.2 million. While slightly down year-over-year, it reflects $48 million of share repurchases, our equity investment in OOG, and last year's higher rate of CapEx associated with our new fulfillment center. Inventory increased 1% year-over-year to $131.6 million, though was down 27% from our peak level in Q1 of 2023. Our current overall position is healthy, as we now focus on optimizing further as we progress through 2025. This includes our continued effort to work through smaller pockets of inventory, including older fit profiles and select categories slated for future reinvention. Looking ahead, we do anticipate the possibility of a higher inventory growth rate in Q2, given some of the uncertainties in the trade environment. On the capital allocation side, we repurchased approximately $2.7 million worth of shares during the quarter at a weighted average price of $4.73 per share with $52 million available for future repurchases. Capital expenditures for the quarter were $1.3 million, and we remain on track with our full year plan of approximately $5 million. Finally, we delivered free cash flow of $7.9 million for the period. Now turning to our planning for the balance of the year. While we are encouraged with this start to the year, we, like the rest of the broader industry, are confronted with new uncertainty of how macroeconomic and consumer pressures will unfold. As we discuss the financial implications, we believe the best approach is to look at where trading policies stand today, make clear distinctions of what we are doing and assuming in this environment, and just as importantly, distinguish what is still undecided. This process will require us to be nimble and continuously evolve our thinking, all intended to be in the best interest of all FIGS stakeholders, including the healthcare professionals who we serve. First, to reiterate, our original full year outlook outlined a plan that we felt good executing against, reflecting our belief that industry demand is stabilizing, and our merchandise and channel efforts were gaining momentum. It also included our decision to reinvest our margin headwinds from 2024, to accelerate investments in key areas like international, TEAMS and retail. As Q1 demonstrated, we tracked very well on those parameters. The ongoing changes in global trade policy have created more uncertainty. We are already subject to the recent baseline 10% tariff, and just at those new levels, we expect to see a meaningful increase in our cost of goods sold, both this year and into 2026. It requires us to scenario plan a range of trading outcomes and mitigation steps, all of which will remain fluid in the months ahead. With all of this in mind, our full year 2025 net revenue outlook is unchanged. Including the Q1 beat, we still remain within our prior net revenue guidance range of down low-single digits and retain our prudently cautious outlook for the balance of the year. For our full year adjusted EBITDA outlook, we are now projecting a range of 7.5% to 8.5%. Our outlook assumes the current 10% baseline and reciprocal tariffs on China, remain in effect for the balance of the year, without the currently paused reciprocal tariffs being added in. The low end of our range includes an unmitigated tariff impact of approximately 150 basis points. The high end reflects strong execution of our cost mitigation strategies and thus includes a reduced tariff impact of approximately 100 basis points. The additional consideration here is, how our average inventory costing will impact the timing and degree in, which the tariffs flow through the P&L. We expect the tariff impact will not materially flow through the P&L until the second half of the year, and will still be phased in with lower cost goods already in inventory during those periods. Now let me provide some further details starting with our supplier base. As Trina highlighted, the majority of our production comes from Jordan today, and a large percentage comes from Vietnam. Related to our very small exposure to China, we are exploring various mitigation strategies, including canceling certain orders and resourcing. We do expect our advantaged product mix will remain an asset, as we look to stay nimble in calibrating and diversifying our supplier base. On the cost mitigation side, we are looking at a range of options across the supply chain, and further expense management. Notably, even with this planned expense diligence, we remain committed to the actions we outlined last quarter, playing offense with investments to accelerate our key growth drivers of international, TEAMS and retail. The other potential mitigation lever is pricing. To be clear, we have not made a definitive decision on pricing, and no pricing action is included in our updated outlook range. We understand the pressures that many of our healthcare customers face, and will be strategic in how we think about the implementation of any pricing action. Now looking at the specifics of our updated 2025 outlook. As I mentioned, we continue to expect net revenues for 2025, to be down in the low-single digit range year-over-year. While we were pleased with our performance across a range of events in Q1, we are taking a prudently cautious approach in future periods, given both the change to our promotional planning, and the uncertainties around consumer demand. For the second quarter, we are planning for net revenues growth to be approximately flat. We have started the quarter with positive year-over-year performance, and remain mindful of more difficult comparisons and a relatively lighter new product calendar. For the second half of the year, we are factoring in a greater sequential headwind, from the reduction of promotional periods, as well as added uncertainty around consumer behavior. On the margin side, while we plan to be less granular in our line item disclosure here, there are a few considerations. First on gross margin. Our current tariff assumptions would have little incremental impact on Q2 performance where we expect gross margins to be within range of the prior year. We then would expect incrementally higher impacts in Q3 and Q4, as more of these goods work through the balance sheet and onto our P&L. To help offset this pressure in gross margin, our mitigation work is primarily focused on the selling line and other G&A opportunities, though we will remain thoughtful across the full expense structure. Selling expenses overall will continue to reflect the lapping of last year's transitory fulfillment center expenses with some offset from ongoing inefficiencies as we work to scale our logistics efforts. The marketing expense rate is planned lower given the Olympics comparison, but we will continue to incrementally support our channel growth efforts. And G&A will include what is now planned to be a $16 million reduction in stock-based comp year-over-year, partially offset by higher planned people costs. As a reminder, our adjusted EBITDA results exclude the impact of stock-based compensation expense. Within the full year adjusted EBITDA margin range of 7.5% to 8.5%, we expect Q2 margin to be above the prior year mark of 9%. Margin in the second half would thus carry the greatest variability, and we remind you of the outsized expense comparisons from last year in Q3. On the capital allocation front, we plan to continue to prioritize investments in our business while also preserving our balance sheet strength. At the same time, we expect to be more conservative with other uses of capital in the near term until we have better clarity, how the macro environment will play out. The months ahead will require ongoing vigilance in our approach and thoughtfulness in our actions, and we believe we are well positioned to navigate this environment. We have a fortress balance sheet, operational discipline, an experienced and energized leadership team and a clear focus on priorities to grow. Most importantly, by sticking to our mission of serving those who serve others, we know that the work we do is not only extremely meaningful, it sets us up for continued success as a business. We look forward to sharing more details on our progress in subsequent calls. And I will now turn the call back over to the operator for Q&A. Operator?

[Operator Instructions]. As a quick reminder, all questions are limited to one question and one follow up. Our first question comes from Matt Koranda with the company, ROTH Capital. Matt, your line is now open.

Hi guys, thanks for taking the question. Just wanted to see if maybe. And by the way, thanks for all the detail there, Sarah, around tariff mitigation, want see if we could focus on that just for a second. I guess the message is, we have savings we can go out and get via supply chain efficiencies and vendor negotiations to sort of limit a lot of the exposure. But there's about $7 million and sort of downdraft at the midpoint in terms of the dollar impact. Why not take price or why not build price into the outlook and maybe just talk about sort of what levers you have on the pricing front to offset that $7 million?

Sure. I'll answer your first part and then Trina can add on in some of the pricing. So yes, you're thinking about that exactly in the right way. So we do have some opportunity to take some cost mitigation. I mean, like we set out in 2025 to really optimize and scale our fulfillment center and our supply chain and now we're just being even more rigorous with that approach. So there's opportunities for us to continue to look at inbound and outbound shipping efficiencies. We're continuing to work with our suppliers to reduce cost and throughout the P&L we can make some decisions around people costs. We're going to continue to be scrutinizing the roles, really looking at the timing of hiring and we'll continue to be very disciplined around G&A. So that's what we're setting out to deliver on as part of our cost mitigation at this point.

Yes, and I think, you know, we're really mindful of who we serve, right? So we serve healthcare professionals. Two-thirds of our customers make less than $100,000 a year. Right now we're in the midst of nurses week, right? Nurses make up a big part of our customers. And we're really proud of our ability to serve them with great product that is both affordable and accessible. And it needs to be, right? These are uniforms that they're going to work every day to do their job. And so -- and we think also they value this price consistency that we've had, especially in our core scrubwear over the years. And so, we're focused on doing everything we can to offset the impact of the tariffs and have a lot of internal mitigation strategies in place in addition to working with our suppliers across our supply chain to offset the cost. I mean, that is what we are doing. And price, I think is the last thing that we'll look at to offset this. As we do think we have a lot more work to do internally and that's where we're focused.

Okay, understood. And then maybe just on the demand normalization. This has been a theme, it seems like over the last call it six months or so, maybe a little bit less in terms of you guys calling out better engagement with the brand and maybe some normalization and purchasing behavior. Curious if you're still seeing that quarter to-date. Was there any impact, I guess, from some of the volatility that's been called out by so many people in the consumer space in April that changes the trajectory of the way that you think about healthcare professionals normalizing their purchase patterns?

Yes, I think I can start and then jump in. I think, we feel really good about coming out of this COVID overhang and entering and moving into a period of more normalization. We've talked about that a lot and we've really seen it. The start of the year, Q2, repeat frequency is up. U.S. business is up. Scrubwear is up, non-scrubwear is up. We had a record quarter of AOV at $119. That really just shows our brand strength, active customers up 4%. And so the underlying demand and the fundamentals of the business are strong. We saw that as well going into Q2. And Sarah, I don't know if you have anything to add on that.

Yes, I mean, we've not seen any notable shifts in the consumer behavior. We delivered 5% in Q1. That was consistent with Q4. And we've entered Q2 with positive growth as well. I would note that we do see some softening demand from our Canadian customers that's very much impacted by the tariff situation. Our social media comments tell us that Canadians want to be supporting Canadian businesses right now. And I think there is some worry that the 25% Canadian tariff on U.S. goods that came into effect mid-March would apply to FIGS goods. It doesn't, but that is an added hurdle to the purchase journey. And those are trends that we are seeing being consistent with commentary from other brands and other industry reports.

Okay. Appreciate all the color guys. I'll leave it there

Our next question comes from Brooke Roach with the company, Goldman Sachs. Brooke, your line is now open.

Good afternoon. And thank you for taking my question. Trina, I'm curious, does the recent volatility in supply chain and tariffs have any impact on your Fit Initiative that you're looking to improve customer experience into the back half?

No, not at all. Our Fit transition is on track for the year, and we're working with the same set of suppliers. Even as we shift some near-term capacity to offset the tariffs, that our Fit initiative will not be impacted by these shifts.

Great. And then just a follow-up for Sarah. Can you give us a little bit more color on the optimization of your selling expenses, particularly some of those inefficiencies in the DC from last year? How should we be thinking about the cost savings opportunity for selling that might be applied as a tariff mitigation effort versus what you think the opportunity is over a multiyear basis, maybe next 1, 2, 3 years for that as a percent of sales?

Yes. I think that there is opportunity for us to continue to scale with volume. So we built this facility to have capacity for $1 billion in revenue, and we're almost capacity there. So as the sales start to come, we will naturally see some improvements that come there. In addition to that, we're still young in our journey here. So the opportunities that we're looking at really within selling costs is multi-carrier opportunities, continuing to negotiate with our vendors. And there's just different opportunities that we're looking to optimize. Jon Tam, our new COO, has actively built a roadmap that we're going to continue to go after. And this is just us being more -- accelerating our efforts there to drive into the savings.

Our next question comes from Rick Patel with the company, Raymond James. Rick, your line is now open.

Thank you. Good afternoon. Can you double click on international performance? When we put aside some of the quarterly variability around the one-offs, what does the rate of growth look like there? And guidance implies a slowing of trends in the back half. I'm just curious how we should consider the U.S. market versus international markets in the back half?

Sure. Thanks for the question. Yes. So our international business grew at 16% for the quarter. That is down from the growth rate that we saw in Q4, so just to keep in mind that the growth rate in Q4 was positively impacted by the duty reclass adjustment from the year prior. Another piece to consider is that our promotional cadence shift did create a negative impact on the growth rate. And then there's also some impact from FX. But underneath that, we're really pleased with the trends that we're seeing. We're seeing great growth in -- being driven from the Mexico business, from our Europe business as well as the Middle East. And that's broadly coming from both new and returning customers and across traffic and conversion, so really well-balanced performance and some really great things that we're excited about. So underneath some of those pieces there, the underlying demand is really healthy and positive. Trina, do you want to speak about your Australia trip and how we're incorporating some learnings there?

Sure. Yes. I had a chance to travel to Australia with our team in the first quarter, and it was during Australian Healthcare Week in Sydney. And it was pretty awesome to be able to be there with our community and looking to inspire the next generation of healthcare workers. Australia is an incredible market. We really saw a ton of community engagement. And that's really important as we look to understand local culture, the market, different behaviour, different preferences to the U.S., and so we're continuing to really localize market by market, Australia being a great example. And like Sarah mentioned, Mexico is performing well. Europe, broader Europe is doing great as well as the Middle East, so continuing to build out our international presence. We are in 32 countries outside the U.S. Japan is coming shortly with South Korea later this year. So really excited about what we're going to be able to do on a global scale as we continue to enter new markets.

And then I can just answer the second part of your question, which was on the slowing trends in the back half of the year. That's broadly related to our shift in promos. So where we're pulling back on promos will have a larger impact in the back half of the year than the front half of the year. And so that's driving the shift in trends from 1H to 2H.

And just on the pricing side of things, can you talk about what you're seeing in the scrubwear category more broadly? And if prices do go up in the category, how would that change your philosophy on your own pricing?

Yes. So scrubwear grew 5% in the quarter. It was really great to see. We're seeing a lot of the growth coming from our limited edition styles, and that's both across core colors and new colors. And just in terms of pricing, there's -- Trina has really touched on a lot of those. We do have different prices for limited editions versus our core scrubwear. And so, we will just need to really think strategically and surgically about what pricing opportunities we would take across our core scrubwear or our limited edition scrubwear or whether that comes in through some of our newer styles. And so there's just lots for us to still think through about what would be the right way to do pricing if and when we decide to do that.

Our next question comes from Brian Nagel with the company, Oppenheimer. Brian, your line is now open.

Hi, good afternoon. Thanks for taking my questions. So I too want to focus at least initially on tariffs. And so the question I have, I mean, look, recognizing that what we're seeing develop here is much more broad-based than anything we've seen historically and also recognizing FIGS is a young company. But is there any -- as you look back at your history, do you have any precedent for having to deal with trade issues like this and how you did it?

Sure. I mean COVID is a great example, right, Brian? And we managed through a pretty tough supplier environment during COVID. As you mentioned, we are a young and nimble company, and we have a really flexible supply chain, and you saw that in our history. And so, I think the big benefit that FIGS has is that we have a non-seasonal business, right? And so, whether it's holiday or spring or summer, we are keeping the lines of our manufacturing partners running all year round. The second thing that's really important that's truly unique is that we have a replenishment-driven business. Healthcare professionals are coming back over and over and over again to replenish their scrubs. And so once again, that's a really great thing from a manufacturing perspective. The third thing is that we have a high-volume, low SKU count business of really productive styles. And so our partners are able to understand what we're making, and that is running year-in and year-out. Our core scrubwear business is the vast majority of what we do. And so, those are all benefits. And it's enabled us to make production moves in the past. It's enabled us to cross-source across our partners. It has enabled us to continue to be an incredibly fast-growing profitable business year after year. And so, we're going to use this opportunity and use this tariff situation to cement our leadership position. We're going to use it to widen the moat, to be opportunistic with our cash. I know you know, we have a fortress balance sheet. And so that enables us to be opportunistic and really build our growth levers and double down on our community as they come out of this COVID overhang.

That's very helpful, Trina. I appreciate that. The second question I want -- and you may have covered this already, so I apologize if it's repetitive. But look, if you look at I guess the sales algo, AOV was again stronger here in Q1. What's driving that? What are the drivers behind the higher year-on-year AOV?

Yes. So our AOV was up 3% year-over-year and hit $119, which is the strongest in the brand's history, so really great to see. Primary drivers behind that are a reduction in discount, and that's attached to our pullback of promo. The other piece in there is also just product mix shift. So those are the two main components driving that growth.

And I would just say on this point of AOV, the number one indicator of brand strength is AOV. Having a record AOV in Q1 is a really important indicator of where we're going and that our healthcare professionals are -- that what we're doing is really resonating with our community, and so, really great to see that. And I think in the first question I mentioned Q2. All the metrics I was referring to was Q1 of 2025.

Well, thank you very much. I appreciate it.

Thanks Brian.

Our next question comes from Dana Telsey with the company, Telsey Group. Dana, your line is now open.

Thank you. Good afternoon everyone. Just wanted to ask a near-term and a long-term question. If you think about the near-term, planning for inventory going forward, I think, Sarah, you mentioned higher inventory growth in Q2. Anything of the magnitude and then planning for back half as you're thinking about it? And then Trina, the B2B business seems -- the opportunities and now with the sales team that you're building seems to -- has the potential to grow pretty fast. How are you thinking about that growth? How are you thinking about where you go and what the opportunities are going forward? Thank you.

Hi, Dana, thanks for the question. So just in terms of inventory, I mean, we're finishing Q1 with inventory up 1% year-over-year. And as we go into Q2, our Q2 ends in June, close to when the 90-day expiration happens. And so, we're just evaluating opportunities of if we should be pulling in inventory before that expiration date. And so we're just continuing to monitor that. We think there is the opportunity to strategically pull a few things forward, and so that would bring an increase in our inventory balance year-over-year. Also, our inventory balance last year in Q2, just from timing of in-transit was pretty low. So overall, we would be up year-over-year. And we just think that we have the opportunity to get ahead of potential increases. And there's less risk to us because we are a uniform business. We're not necessarily trend-based or have products that would expire quickly. So we feel comfortable with where inventory is at. There's still continued opportunities for us to be balancing inventory, but we are working through our Fit transition this year. We have also been bringing in inventory related to FORMx. So there's just a few pieces there that are bringing up our balance. But ultimately, we've set out this year to be buying with conviction, really to support our growth momentum.

And as it relates to TEAMS, TEAMS is an incredibly exciting opportunity, one that we've talked a lot about with you. 15% of the market is healthcare professionals that don't buy their own scrubs. Their employer, their administrators, the head physician at the office is buying on behalf of their team. And on top of that, we're seeing this huge trend within concierge medicine where these businesses are looking to brand and professionalize their teams, and they're turning to FIGS to help them do that, which is super exciting. And so this outbound team that we've built, the timing is really optimal. And we're not just leaning into going outbound and bringing on large institutions, although we did bring on one of the largest healthcare companies in the world during the quarter. I can't yet say the name, but that's coming soon. But we've also really simplified the process and the technology. And it's first of its kind. Our TEAMS technology is really simple. You're able to go on there, order for your hundreds, thousands of sets of scrubs for your team, jackets, fleeces, scrub jackets, compression socks, whatever you need, so that your whole team can look unified and go to work and do that job. And so, really exciting early wins from an outbound sales perspective, more to come here, but we're excited.

Thank you.

Our next question comes from Nathan Feather with the company, Morgan Stanley. Nathan, your line is now open.

Hi everyone. Congrats on the strong quarter. I wanted to dig a little bit more into some of the cohort data you talked about. Can you help us figure out what have been the primary component to drive this reactivation? Anything kind of separate from the core business? And do you see any difference in consumer behaviour once you reactivate a customer versus if they hadn't churned in the first place?

Hi Nathan, thanks for the question. Yes. I mean, in terms of reactivation, I think we're just giving our healthcare professionals more reason to come back. And that ultimately starts with product and having really great product, and that's supported by a ramp-up in our marketing efforts. And so those two pieces are bringing back that customer at increasing paces that's really helping to increase that active customer growth. And so we've been really working to evolve our marketing to a full funnel approach, making investments across the funnel to really amplify our brand messaging. We've been really happy with our campaign that we've launched, which is Where Do You Wear FIGS, and that will continue to run throughout the year. And that campaign is just -- it really resonates with healthcare providers and really makes them feel like they are being seen and heard, and I think that that's really important. And we're continuing to speak to them in ways that they want to continue to engage with us. And so I think those are all of the drivers for what is helping to improve some of our active customer growth.

Yes. And the last thing I would just say on the reactivations, whether you're coming to us in month three or month 10 or month 13, like that -- the community loves FIGS. And so this active customer period of 12 months is kind of like an arbitrary formula. But I do think the behaviour of our community and that reactivation number is really a sign -- a really big sign of coming out of this overhang and into a more period of normalization. So that's a really great thing to see, and we look forward to seeing kind of that repeat frequency continue to improve over time.

Great, encouraging stuff. Thanks, everyone.

Thanks Nathan.

Our next question comes from Lorraine Hutchinson with the company, Bank of America. Lorraine, your line is now open.

Thank you. Good afternoon. With the onset of tariffs, are you actually seeing any early changes to pricing from your competitors? Have you done any research on where they're sourcing and if you have an advantaged position? And can you go on the offensive to take market share during this volatile environment?

Hi, Lorraine -- go ahead.

You said hi to Lorraine. You go.

I mean that's what we're doing, Lorraine. I think we are really using this situation to continue to take share. I do think we have a real advantage from a scale perspective, from a brand perspective, from a supply chain perspective. And the companies that are in -- that sell scrubs, we don't really call them competitors, but those companies that do that are -- this is going to be a challenge for them. And so we're using this opportunity to widen the moat to lead this industry, boldly define the future of what this industry will be and use as an opportunity to get better and better.

Thank you.

Specifically on the pricing around other companies. I think a few companies we've seen increase price, but very far and few between and very small companies.

The next question comes from Ashley Owens with the company, KeyBanc Capital Markets. Ashley, your line is now open.

Hi, this is [Chris Brazo] on for Ashley. Thanks for taking our question. So you guys mentioned launching in Japan and Korea later this year. And so I was kind of curious, given the uncertainty and lack of visibility in the U.S. in the near term, does the roadmap or plan in Asia accelerate at all? Or is there any call-outs to changes there?

Sorry, cut out for a second. Sorry, can you just repeat the last part of that?

Yes. So I was just wondering if the roadmap in Asia accelerates or changes given the uncertainty in the U.S.?

No, no. We've had these plans in place. We really feel good about how we're approaching the market, Japan, South Korea and Asia more broadly. And so nothing about the current situation changes our plans or how we're going to market.

Okay. And then just a follow-up on like kind of the flip side of that. I mean, given that maybe some domestic companies will be pulling back in this time, I'm wondering how you guys view maybe like opportunistically investing or if there's any areas of focus that you'd look to there?

Yes. I mean, we are opportunistically continuing to invest in our growth levers. International is -- we look to be an iconic global brand for the next 100 years. And we're only in 32 countries outside the United States, and there's a lot more to do to localize the countries in which we are already in. And so we're really excited about the strides we've made, but more to do. On TEAMS, we talked about that a bit. We're in the early, early stages of our outbound efforts in getting every large healthcare institution in FIGS. We're on our way. And finally, Community Hubs. We have two stores, and we're open in Houston. We're so excited and two more this year and much more to come. And so the best brands in the world have retail. Our community we know wants to feel and touch and experience our products. They want to figure out their fit and then buy every color under the sun, and then outfit, really get the whole layering system from head to toe, to work, at work, from work, on shift, off shift. And so massive opportunity to have a physical presence in every city, and that's what we're looking to do. And so we're investing in our future. We're investing in our growth levers. We are doubling down on our community that is coming out of this COVID overhang. We are showing up and serving them in more and more ways. If you haven't seen our Nurses Week film, I would check it out. It's gone viral. It has, I don't know, over 10 million views across platforms, maybe more than that. My team is going to get mad at me for under-representing what its doing. But I think that's where we're focused. We're focused on the things we can control. We're focused on showing up for our community and doing what we do best, which is making the best product and connecting with this community in meaningful ways.

Awesome. Thanks, guys.

At this time, I'd like to pass the conference back over to the CEO and Co-Founder, Trina Spear. Trina, you may proceed.

Thank you all for joining our first quarter 2025 earnings call. We will see you next time.