FIGS, Inc. Q1 FY2024 Earnings Call

Good afternoon. Thank you for joining today's FIGS First Quarter 2024 Earnings Conference Call. My name is Jaylen, and I will be your moderator for the call. I will now hand it over to our host, Jean Fontana. Please continue.

Good afternoon, and thank you for joining today's call to discuss FIGS first quarter 2024 results, which we released this afternoon and can be found in our earnings press release and in the stockholder presentation posted on our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Kevin Fosty, our Interim 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, which we encourage you to review. 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 to these non-GAAP measures to their most comparable GAAP measures are included in the stockholder presentation we issued today. Now I'd like to turn the call over to Trina Spear, Chief Executive Officer of FIGS.

Thank you, Jean. We were pleased with our first quarter results. Net revenues came in at the upper end of our expected range at down less than 1%, and adjusted EBITDA margin of 10.9% exceeded our expectations. We were especially excited to see improved momentum in our business beginning in mid-March and into the second quarter. Over the last two quarters, we discussed factors that we believed were impacting our performance, and we made changes in response to these challenges. We got back to our roots in delivering incredible product innovation, coupled with impactful storytelling centered around the healthcare community, and we're seeing these actions begin to pay off. As we have said in the past, healthcare professionals need their uniforms to perform at their jobs and need to regularly replenish these products. The highly attractive fundamentals of our business are in large part due to the repeat frequency dynamics of healthcare apparel. We are seeing these frequency trends begin to stabilize, and we plan to build on this momentum. Reflecting on the business, we are delivering strong performance across our growth strategy. Starting with product. We raised the bar on innovation. Over the last two years, we've bolstered our product team, further building out our design and technical development talent. We've also bolstered our supply chain with best-in-class manufacturing partners. The results of these investments are beginning to bear fruit. In the first quarter, we saw strong engagement generated by new products, including our On-Shift Sherpa Bomber Jacket, Seville ScrubLegging and Isabel Wide Leg Scrub Pant. Notably, these launches also created demand for our core assortment. This is just the beginning. We plan to offer a steady stream of true pinnacle products, including new fabrications and categories that will push the limits of anything healthcare professionals have ever seen before. We believe this innovation will bring unprecedented functionality, fit, comfort, design and greater velocity. The halo from these pinnacle products is also driving demand for our core styles. As part of our amplified innovation strategy, we have made the decision to accelerate the timeline of our initiative to improve fit consistency across our assortment. We began to introduce our new fit blocks in April and now expect to complete the rollout by October 2024. Our new product innovation will be fused with marketing campaigns rooted in true storytelling, centered on the Awesome Humans that make up our community. In April, as part of our Extremes series, we launched our Call of the Wild campaign, featuring Dr. Chloe, a veterinarian who operates on the front line of wildlife conservation. The product capsule featured our indestructible scrub overall and scrub jumpsuit, each of which quickly sold out. The collection was made in a new fabrication that's tough on the outside and soft on the inside, providing extra durability, stretch, moisture-wicking and water resistance. The product launch was amplified by a meticulously executed campaign that celebrated this extraordinary work. The campaign, which we filmed in South Africa, captured the hearts and minds of our community, drawing 9 million impressions among a wide range of healthcare professionals who are in awe of Dr. Chloe's mission. This past Sunday, to kickoff Nurses Week, we hosted a celebratory event in New York City with over 100 Awesome Humans. On Monday, we brought 13 nurses from across the country to ring the opening bell at the New York Stock Exchange in recognition of Nurses Week. We also kicked off our annual I Am a Nurse campaign, which celebrates our incredible nursing community. The momentum we have seen in our recent launches illustrates the opportunity we have to truly lead with brand storytelling. At FIGS, we obsess over customer journeys and look at the full marketing funnel to meet our community members where they are. We have an amazing community, and we provide the platform for them to share their stories. Awesome Humans storytelling is not new for us. It's in our DNA. And as we look ahead, we have a huge opportunity to deliver more tentpole, brand-defining campaigns and to put more investment behind top of the funnel initiatives. In parallel, we will continue to focus on the unique needs and interests of healthcare professionals and effectively move customers through a full journey, driving not only awareness but also consideration and conversion, ensuring that each marketing touchpoint builds on the last. This approach will lead to greater brand engagement among new, lapsed and existing customers and fuel growth and profitability. Based on our recent strong momentum, we're further leaning in and taking bigger and bolder steps to grow our community globally across channels. This means we're strategically ramping investments primarily around brand marketing in response to the encouraging trends we're seeing in the U.S. market, strong momentum in our international business and a growing network of institutions joining our team's platform. International net revenues grew 29% in the first quarter compared to last year, reflecting the reclassification of duty subsidies, which negatively impacted net revenue growth by 11 percentage points. We continue to gain traction across the countries we serve and plan to identify new markets where we believe FIGS can become the leader in healthcare apparel. Similar to the building blocks of our success in the U.S., our global marketing strategy focuses on full funnel storytelling with investments in our ambassador program, digital marketing and localized e-commerce experiences. Turning to teams, we made investments in building foundational ordering experiences for two of our largest teams customers with the development of the Aya Gifting platform and the VEG Stipend Experience. Looking ahead, we're eager to evolve and amplify these and other ordering platforms with the support of an outbound sales team and digital marketing effort in order to serve more teams in more ways. Finally, with respect to retail, we're incredibly excited about the prospect of being able to serve more healthcare professionals and look forward to the opening of our Philadelphia location. We acknowledge that we're early in our retail journey, and we're learning more each day. We remain committed to our test, learn, apply and win approach with locations and formats and do not currently plan to meaningfully accelerate new hub openings until we can achieve key proof points. Operationally, we're on track with our fulfillment center transition designed to support greater scale, increase flexibility and reliability and deliver greater efficiency. In addition, the foundational work behind this facility will help us to expand and scale our distribution network globally. This will not only support our growth but enable us to deliver a superior customer experience across geographies. Importantly, we remain committed to delivering incredible brand cultural moments supporting the healthcare community by highlighting the work that they do and by giving back. In January, we opened the FIGS operating theater in Ukwala, Kenya, a state-of-the-art facility that is the first of its kind in the region. It's now creating sustainable change for people in this community who previously had to drive hours to receive surgical care. As we look to the remainder of 2024, we believe we're on the right path to reignite the excitement and word of mouth dynamics that propelled us to a leadership position in the industry. We're seeing the trends move in a positive direction, and we're strategically investing in that momentum while remaining disciplined in controlling our expenses. The long-term growth outlook of the healthcare industry and favorable replenishment dynamics, coupled with our strong debt-free balance sheet and robust cash flow generation, provide a solid foundation to execute and invest in our growth plan. As the distant leader in healthcare apparel, we recognize the urgent need to serve healthcare professionals, and we are at the forefront of this effort. Now, I will pass it over to Kevin Fosty to discuss our financial results and provide an update on our outlook.

Thank you, Trina. For the first quarter, net revenues came in at the upper end of our guidance range, while adjusted EBITDA margin exceeded our expectations, yielding strong free cash flow generation. We were also encouraged to see improving trends, particularly around repeat frequency, indicating that our product and marketing strategies are gaining traction. With a steadfast commitment to serving the healthcare community, we are highly optimistic about our ability to drive accelerated growth into the future. While margins are expected to be impacted in the short term, we are confident that these investments will not only drive higher net revenues growth in the future but also stronger and more sustainable profitability. I will begin my discussion with a detailed review of our first quarter results, followed by an update on our financial outlook. Starting with our first quarter results. Net revenues decreased 0.8% to $119.3 million as compared to Q1 last year. Net revenues reflect $1.4 million in contra revenue associated with duty subsidies paid for international customers. As a reminder, duty subsidies were recorded as selling expense in last year's first quarter. Active customers for the trailing 12-month period increased 8.6% compared to the same period last year. Average order value increased 1.8% to $116 in the first quarter, reflecting higher AUR due to product mix and higher UPTs. Net revenues per active customer on a trailing 12-month basis decreased 2.8% to $210 versus the same period last year. These metrics reflect the aforementioned international duty subsidies, which negatively impacted both AOV and net revenues per active customer growth by approximately 1 percentage point each. Looking at product categories. Non-scrubs grew 9%, reaching 20.5% of net revenues. Gross margin for Q1 was 68.9% compared to 71.3% in Q1 of 2023. The decline in gross margin rate was primarily due to product mix shift. Selling expense for Q1 was $28.5 million, representing 23.9% of net revenues compared to 25.9% in Q1 2023. The decrease in selling expense as a percentage of net revenues primarily reflects duty subsidies that were recorded in selling expense last year and are now reflected in net revenues as contra revenue. These costs were partially offset by startup costs associated with the transition of our fulfillment center to a new facility. As Trina mentioned, the new facility will enable greater efficiencies and set the foundation to expand our distribution network. Please note, transitory costs related to the fulfillment enhancement project came in below our expectations in part due to a timing shift into the second quarter and in part due to lower than expected startup costs. Marketing expense for Q1 was $17.2 million, representing 14.5% of net revenues compared to 14.2% in Q1 2023. The increase in marketing expense as a percentage of sales was largely due to an increased mix in international marketing spend. G&A for Q1 was $36 million, representing 30.2% of net revenues compared to 28.4% in Q1 2023. The increase in G&A as a percentage of sales was largely due to the continued investments in people. This was partially offset by a decrease in legal fees, lower accrual for charitable donations and reduced professional fees versus last year. Taking this to the bottom line. First quarter net income was $1.4 million, or diluted EPS of $0.01. First quarter 2023 net income was $1.9 million, or $0.01 in diluted EPS. Adjusted EBITDA for Q1 was $13 million with an adjusted EBITDA margin of 10.9% compared to 13.4% in Q1 2023. Touching on our balance sheet. We finished the first quarter with cash and cash equivalents and short-term investments totaling $259.2 million. Inventory declined 28% to $130.5 million versus Q1 last year as we continued to make progress in bringing our inventory back to normalized levels. Overall, we are very comfortable with the composition of our inventory. Capital expenditures for the first quarter totaled $4.5 million. This is largely associated with the fulfillment transition project. And finally, we delivered strong free cash flow of $11.1 million in the first quarter. Turning to our outlook. Based on recent performance and the positive impact from our brand initiatives we have in place, we are raising our full year net revenues outlook to negative 2% to positive 2% as compared to 2023 and versus prior guidance of down 5% to flat. As a reminder, we expect Q3 to be the toughest year-over-year comparison in terms of net revenues growth, primarily due to the anniversary of last year's highly successful sample sale in September. Our gross margin outlook for the year is unchanged and expected to be in line with our 2023 gross margin rate. We are committed to enhancing product innovation through new fabrications, advanced features and designs tailored to meet the needs of healthcare professionals with premium products at exceptional value, which may impact gross margin rate in the short term, but we are confident that we will drive higher margin long term. First, as we expand and diversify our fabrications and product categories, we anticipate realizing economies of scale over time, subsequently mirroring the margin trajectory delivered by our core scrubwear and FIONx lines over the years. And second, we expect new innovation to also drive our higher margin core business. Also note that we expect the duty drawback benefit anticipated for later this year to offset some of the headwinds from new product innovation. Turning to selling expense. Total transitory costs associated with our fulfillment enhancement project are now estimated to be approximately $13 million, slightly below our previous expectation of $14 million. We expect to realize the bulk of these transitory expenses in the second quarter. Note that a portion of fulfillment costs that we assumed would fall in the first quarter shifted to the second quarter. We anticipate the transition to be largely complete by the end of the third quarter. With respect to marketing spend, we plan to increase our investment as a percentage of net revenues as we build on our momentum. The majority of the higher investment will be incurred in the third quarter, coinciding with a large-scale brand campaign. With respect to G&A, we plan to maintain investments in key areas of our business, particularly in talent, while carefully managing expenses to identify savings opportunities. As a result of these factors, adjusted EBITDA margin for full year 2024 is now expected to be between 9.5% and 10.5%. This reflects approximately 220 basis points of cost headwind from the transitory portion of our fulfillment project. Turning to our second quarter 2024 outlook. We expect net revenues growth of between 3% and 4%. We expect gross margin to be down versus Q2 last year, largely due to a product mix shift. Importantly, while there may be fluctuations in the short term, we aim to maintain a healthy margin rate while also making the right investments in our long-term growth. Looking at operating expenses. For selling expense, we expect deleverage of approximately 330 basis points, which takes into account higher transitory and ongoing fulfillment costs. As a result, we expect second quarter adjusted EBITDA margin to be approximately 8.5%. Our capital expenditures expectation for 2024 continues to be between $18 million and $19 million, including $13 million to $14 million in fulfillment enhancement related costs. In closing, we're delighted to see the positive trends in our business. Moving forward, we'll continue to capitalize on our robust balance sheet and cash flow dynamics to strategically invest in our future growth. With that, I will turn it over to the operator to kick off our Q&A session.

First off, congratulations on upping your business lately.

Thanks, Brian.

The first question I want to ask is about the adjustments to the guidance and the investments being discussed. As we consider the increase in revenue guidance and the decrease in EBITDA margin guidance, are you viewing these additional investments as more of a short-term opportunity to take advantage of the improving trend? Or will this alter the cost of doing business for FIGS in the long term?

Sure. Thanks, Brian. So I think, as you know, the fundamentals of our business have always been highly attractive. At the center of that is the metric of repeat frequency. By the nature of what we sell, uniforms, and who we sell to, healthcare professionals, we naturally benefit from frequent replenishment. And so we saw in the second half of March going into Q2, we saw these trends improve. And we really are attributing that to strong engagement around our product launches, combined with the marketing campaigns that we've put out that have all been centered around the healthcare community. And so that is where we're seeing the dynamic shift and why we're increasing our revenue guidance for the year. We are being prudent given it's still early days. And we're seeing this dynamic working between product and marketing coming together. We're investing behind that, and that's where you see the EBITDA guidance. We're bringing that down, and that can be almost fully attributed to this increase in brand marketing spend that very much is a short-term dynamic as we continue to invest in what's working, as we continue to scale and build the business to $1 billion and beyond.

Got it. That's helpful, Trina. Regarding the gross margin, it seems to have performed slightly worse than anticipated. You had indicated it would decrease, but you mentioned a shift in the product mix. Should we view this as a temporary issue, or is it likely to continue?

So as we shift into building out our categories, building out fabrications, in addition to raising the bar of quality as it relates to our features and trends, there may be some higher product costing associated with that. But it's really a short-term dynamic, because as you've seen with FIONx, with our core scrubwear over the years, we get economies of scale over time. And so we look to see that in our new innovation. We look to see a similar margin curve over time that we saw with core scrubwear. And so it's all about balancing and gaining leverage from that core to invest in the future of the business, invest in innovation. And so the gross margin this year and beyond, that's kind of how we think about it.

Well done on the new innovation here. I'm hoping you can provide some additional color on the shape of revenue growth that you gave. So can you help us with the building blocks for how that growth is achieved as we think about growth in active customers versus frequency and AOV?

Sure. So as you've seen, we've had a number of gains from, let's start with AOV. AOV was $94 in 2019. We finished this last quarter at $116. That's a function of both AUR and UPT. So AUR is driven by really building out our layering system. You're seeing footwear, outerwear, FIGS PRO all have higher retail MSRP. And so that's driving AOV growth as well as UPT. And just to add to this. I think it's really important to note that the innovation is a key piece to this. Our limited edition scrubwear has doubled in the past year. And our non-scrubwear, it was 18.6% of the business last year. It's 20.5% as of this past quarter. And so really seeing innovation, really seeing this diversification across category to move beyond an e-comm scrubs business. We're diversifying by category, by fabrication, diversifying by channel and geography. And all of that is really important as we aim to be an iconic brand over the next 100 years. As it relates to the guide, there will be a modest increase from an active customer perspective, and it actually assumes repeat is down. And so we are being prudent as we're seeing some gains there.

Great. And can you also talk about the potential to chase demand for the innovation that is working? I know inventory is down 28%, and it's where you want it to be overall. But do you have the right inventory to meet the demand for the newer products that you've launched?

We are very satisfied with our inventory levels. Over the past year, we have made significant progress, achieving a 28% reduction compared to last year, and we expect this trend to continue throughout the year. We believe we have the right inventory mix across our core offerings, limited edition styles, and key products. Recently, we launched a fantastic indestructible capsule. We are excited about what's ahead. We remain adaptable and have already introduced several important products in the first quarter, such as our sherpa bomber, scrub leggings, and wide leg pants. There are more items I can't disclose at the moment, but we are actively pursuing trends and adjusting our inventory based on demand and enthusiasm.

I just wanted to follow up on the brand marketing increase that you're doing in the third quarter. Trina, you spoke earlier about it being a shorter-term dynamic. So when we think about 2025 and 2026, should we expect marketing to come back down? Or would you expect to be growing revenue sufficiently to just have that cost percentage decline naturally?

So what I'll say is that we're really making this brand investment intentionally. We're focusing on the spend on what's working. We're seeing the new customers. We're seeing these improved frequency trends. So we're leaning in. And we believe that this is going to drive higher growth, paving the way for long-term profitability. We are a growth company. So what we've done is we've looked across the marketing funnel, and we're taking concerted efforts to right size our spend across upper and mid-funnel tactics and because we do believe we shifted away from this over the past year or so. So I do think what you'll see is that this is going to drive growth, and it's going to drive profitability over the long run, but these are longer-term types of investments. And there's an interesting stat from a consumer landscape industry perspective. Upper funnel marketing investments drive awareness that lead to high-quality organic traffic, which converts three times higher than traffic driven directly from paid ads. This is an important dynamic that we're excited to lean heavier into. So we're leveraging that spend to continue to show up and engage our community. Ultimately, this is going to equate to retaining our customers and bringing more healthcare professionals into the fold. And as we go into 2025 and 2026, we'll update you as we go.

This is Chandana Madaka on for Ashley today. So I just kind of wanted to ask on the initiatives, could we dig a bit deeper into the initiatives behind that that began launching in April where it's been rolled out already and where you're planning to complete by October?

Sure. Thank you for the question. So delivering consistent fit across our assortment is a non-negotiable. This has been something that's been underway for quite some time. But being able to have your uniform fit the same way every time, what you ordered six months ago as a healthcare professional. Maybe you order the Catarina top and the Yola pant, two of our best-selling items, and you come back six months later, it has to fit exactly the same as long as your body didn't change. So this is a really important initiative. And we believe this transition is going to help improve repeat frequency and retention. And we really want to ensure that we're delivering the best experience to our healthcare community at all times. We expect inventory, like I said, to continue to decrease on a year-over-year basis for the remainder of the year, even with the pull forward of inventory related to the fit transition. And as we monitor selling trends, we're going to manage our inventory levels accordingly. But like I said, we do feel like we're in a very healthy position today. It's why we're able to bring in all of this newness and innovation that we're really excited about.

Awesome. And then just kind of following up on that inventory piece. Could you provide us with a refresh on maybe your expected promotional cadence you're planning for this year now that it's at a more normalized level? So how are you thinking about that?

We're going to continue to be disciplined around our promotional cadence, and we're going to continue to really utilize promotions in a very celebratory way. Right now, it's Nurses Week, which is our Super Bowl. So you see the offer that we have on our site, and it's really about celebrating our community and inspiring the next generation to want to become them. And so we're going to be really leaning into those moments and not shifting our cadence from what you've seen in the past and what you will see year-over-year.

So you've run two sample sales relatively close to each other, at least relative to your historical cadence. I guess can you talk through the thought process there, what kind of uplift it generated? And then do you expect the first quarter sample sale you ran to pull forward any demand from second quarter similar to the prior sample sale on the back half of last year?

We hold a sample sale once a year, and we don’t compare it to previous periods. Last year, it took place in Q3, while this year it’s in Q1. The timing is based on when we think it makes sense to engage our community with that kind of exclusivity. Customers can access older styles and colors, which creates a really exciting opportunity. That was the reasoning behind this year's timing. Additionally, based on current trends, I don't anticipate that there will be a shift in demand from Q2 into Q1.

Just wanted to circle in on the purchasing dynamics and the inflection that you saw later in the quarter. So maybe just curious if you can drill down on where you think the inflection is coming from. Is it coming from new customers to the brand? Is it coming from existing active customers that are tightening their purchase cycle? Or is it active customers that basically went dormant for a period of time post pandemic? Just any detail around that and maybe just to unpack regionality if there is any or any subsegments among your healthcare professionals.

We've really seen improvement coming from the repeat frequency. It's active customers and those who had lapsed that are returning, excited by our innovation and storytelling. This illustrates the effectiveness of our plan to combine true innovation with impactful storytelling. We believe, and have always believed, that repeat customers drive new ones. These repeat customers are in hospitals and institutions wearing our products, attracting new customers through word-of-mouth. This dynamic is very powerful, especially in densely populated areas. As repeat frequency continues to grow, we expect to see new customer acquisition increase as well. In terms of geography, we've seen strong frequency and reactivation in both the United States and international markets. This trend is evident not only with repeat customers but also across various other metrics in the business.

Okay. That's helpful. And then just in terms of the change to the margin guidance, I just wanted to make sure that we're all super clear. It sounded like you said gross margin for the full year didn't change. So we're still expecting kind of flattish gross margin for the year. So all of the incremental EBITDA margin cut is essentially coming from the marketing line?

That's correct. So gross margin relatively flat year-over-year. And the EBITDA update is really around us investing and doubling down on what's working and doubling down on engaging our community in awesome ways. We have $259 million of cash. We have no debt. This is a highly cash flow generative business, and we're investing in ourselves.

Trina, as you think about the product mix shift that is ongoing, what are you going to? What are you going from? How is the pricing on new products changing or adapting? And now we're in the middle of Nurses Week. What are you seeing this year that's different than last year? Is there a pickup of momentum? Is it a product category that you're seeing with that momentum improving?

Thanks, Dana. It's great to speak with you again. We aimed to diversify our business in terms of product offerings and categories, including outerwear, under scrubs, and compression stocks. We're looking at what healthcare professionals are wearing in various settings, from on duty to off duty, from head to toe. We're no longer just a scrubs company, and the numbers reflect that. Over 20% of our sales this visit come from products outside of scrubs. Even within the scrubs category, we've made significant progress in innovation, notably with our limited edition scrubwear, which has contributed positively to the business. This has also led to higher average unit retail prices. It's encouraging to see new innovations drive unit per transaction, providing leverage in areas such as freight, fulfillment, and marketing. Although product margins may be lower initially, the order economics compensate for that. We expect gains in average order value from both the increased average unit retail and unit per transaction as discussed. Regarding Nurses Week, we have had a strong start, and it's exciting to see the engagement. We launched Nurses Week at the New York Stock Exchange, showcasing our nurses to emphasize what we stand for: celebrating this community in meaningful ways and gaining wider recognition for their work. I am thrilled about that moment and eager to continue engaging with them this year.

Got it. Any learnings from the retail store? And when does Philadelphia open?

So the retail store. So the store has been great. Forty percent of our community that is purchasing within the store are new customers. And this is in our most penetrated market of Los Angeles, and that's great to see. Healthcare professionals are like everybody else, right? They want to engage with brands, both online and off, and we're seeing that in our Century City store. Philly is coming in late summer, which we're super excited about on Walnut Street. And it's a great space. It's a larger format than Century City. And we're really excited about the community space on the second floor where we're going to be able to engage with speaking events and different activations. It's going to be so awesome. So I'll send you that invite, Dana, because you've got to come.

I guess, Trina, I was just wondering if you could talk more about sort of the customer a little bit. You mentioned pressures on the healthcare professionals last quarter, and I think that impacted demand. Is it changing now? If it hasn't changed, what do you really think is spurring some of the demand? And I guess the other piece of this is, do you think the replacement cycle is bottoming?

So we're seeing signs, like I said, that repeat rates have bottomed and are now rising and heading in a positive direction. This is something we've talked about for a while, and so it's really exciting to see that. It's still early days, but these leading indicators make us very hopeful about the health of our consumer, about the health of the healthcare professionals that it's starting to turn a corner. And more generally, we've spoken about some of the systemic issues with healthcare professionals. We remain focused on fixing the structural issues in health care, and it's why we fight so hard on advocacy for our community with our Awesome Humans Bill. So that's really something that we are going to continue to fight for.

Trina, you've spoken to the green shoots that you've been seeing in the non-scrub category as well as new limited edition product. Can you elaborate on the growth rates and frequency trends that you're seeing within your core U.S. scrubs business? And is the core scrub customer engaging more at full price? Or has more of this green shoot growth been driven by key promotional moments?

What we have observed is that innovation is not only increasing sales in those styles and categories, but it's also benefiting our core offerings. We often say at FIGS that premium products enhance core sales while repeat purchases attract new customers. The exciting new product launches this year are fostering engagement in these styles and categories, as well as in our core products. It's encouraging to see. The core serves as a lagging indicator of sales performance across our premium and limited edition lines. Sorry, Brooke. What was the second part of your question?

Just whether or not that consumer is engaging more at full price, or if more of these green shoots have been driven by promotional moments.

We haven't seen much change year-over-year in engagement between full price and promotional moments. Therefore, we remain very disciplined in our promotional strategy, which is reflected in the gross margin. It's encouraging to observe that the level of engagement is not limited to just those promotional times.

Trina, you talked a lot about TAM, factoring the IPO process. Wondering how your view of addressable markets evolved and how your share is progressing as we get through 2024.

John, I anticipated your question about the total addressable market, so I'm pleased we're discussing it. We're optimistic about our potential to further penetrate the healthcare apparel market, which is valued at $80 billion globally and $12 billion in the United States. Currently, we're generating over $0.5 billion in sales, and we have significant growth opportunities ahead. This is evident in our international expansion and the growth of our teams, which is exciting as we continue to scale the business. Additionally, we've mentioned that we are creating our own market. The non-scrubs segment primarily involves market creation, and seeing it constitute over 20% of our business is a positive indicator. While the scrubs market exists, we are innovating continuously. Much of what we are doing even within the scrubs category is outside the traditional market definition. We seldom discuss the total addressable market because innovation alters it, and that's our focus.

There are no additional questions waiting at this time. I would like to pass the conference over to Trina Spear for closing remarks.

Thank you for joining us. This is great speaking with you all, and I look forward to speaking with you next quarter.

That concludes the FIGS First Quarter Fiscal 2024 Earnings Conference Call. Thank you for your participation and enjoy the rest of your day.