Good afternoon. Thank you for attending the FIGS Third Quarter Fiscal 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. I'd now like to pass the conference over to our host, Tom Shaw, Senior Vice President of Investor Relations. Tom, please go ahead.

Good afternoon, and thank you for joining us to discuss FIGS Third Quarter 2025 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; 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 opportunity or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10-Q we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation we issued today. Now I'd like to turn the call over to Trina.

Thanks, Tom, and good afternoon, everyone. Our third quarter results are built on the momentum generated during the first half of the year, delivering our highest quarterly year-over-year revenue growth over the past 2 years, supported by strong performance across the board. Net revenues were up 8% for the quarter, well ahead of our plan. Importantly, this success was pronounced across the core parts of our business, scrubwear, the U.S. and our business as usual selling days. At the same time, we drove the core while executing our plan to pull back on promotions. We believe these positive trends within our foundation are a great sign of our brand health and support the sustainable growth story we see ahead. We also executed well across the P&L in Q3. Gross margin remained healthy, approaching 70% despite the growing impact of tariff headwinds. Substantial SG&A leverage reflected both the lapping of outsized expenses last year, but more importantly, the success of our ongoing efficiency and tariff mitigation efforts. Overall, this execution supported an impressive 900 basis point improvement in our adjusted EBITDA margin to 12.4% for the period. As we look ahead, we are seeing this positive momentum carry over to the start of Q4, and we are meaningfully increasing our outlook as a result. We now expect Q4 to be our strongest net revenue growth of the year, driving our full-year estimate to approximately 7% growth. We also have increased our adjusted EBITDA margin expectation above the high end of our original outlook and back to low double-digit levels. This reflects the great progress we have made during the year despite the onset of tariff headwinds. Overall, we are executing exceptionally well against our expectations and driving better consistency. I'm so proud of our team's collective effort as we look to deliver to all of our stakeholders, most importantly, our healthcare professionals. Reflecting on our year-to-date results, we have seen an outstanding response to our brand and wanted to spend some time on this call walking through some of the dynamics we see contributing to our top line outperformance. At the highest level, it really comes down to our success in delivering a great product assortment and impactful connections. Starting with our product strategy, we are excited about the direction we are headed in and how we are more effectively delivering our portfolio to healthcare professionals. We see 4 interrelated areas of focus that are both paying dividends today and setting us up for success in the future. These include improved function and fit, expanded head-to-toe solutions, strategic inventory investments and stronger calendar alignment. We recognize the importance of function and fit. These are already hallmarks of our brand, but areas to continually improve in to address the evolving needs of healthcare professionals. From a functional standpoint, we are delivering impactful and relevant new silhouettes, which are resonating with new and existing customers. This focus has been key in driving our core while also demonstrating success in elevating our assortment. Function also informs fabric leadership, where our category-defining FIONx fabrication remains the centerpiece of our brand. However, we know that there are opportunities to address the full range of activities that healthcare professionals go through every day. Our FORMx fabrication debuted in Q1 for environments where comfort and stretch are paramount, and we have seen momentum build as we have methodically expanded offerings throughout the year. We also just announced our next fabric solution, FIBERx, which is set to debut in Milan at the 2026 Winter Olympics. Lightweight yet structured, soft yet durable. This fabric is designed to work in environments, like for those supporting our Olympic athletes, where durability is particularly important. Looking at our fit initiative, our efforts are already paying off with lower returns, fewer inbound comments to our customer experience team and improved customer trust. With our obsession with function and fit coming together, we are also excited with how our enhanced product design work will elevate the entire product portfolio in 2026 and beyond. Continuing to build this strength in our core opens the aperture for updating healthcare professionals from head to toe. For example, our recently introduced ArchTek compression socks demonstrate our latest commitment to category leadership as the first ever patented medical-grade compression socks in the market. Across additional areas such as outerwear, underscrubs and footwear, our team has developed a roadmap of how we plan to prioritize and build out these opportunities in the years ahead. With confidence in great product, we are investing appropriately. Coming off recent periods of more conservative buying plans, we have made more informed and deeper inventory investments across certain styles and colors. This action has contributed to a better flow of newness to our healthcare professionals while also supporting better overall in-stock levels. Finally, this all ties directly to our enhanced merchandising work around calendar alignment. We have added more rigor to how and when we deliver our product and messaging, efforts that have not only enhanced productivity across launch moments, but also our ability to leverage those moments in driving demand back to the core. This work has added importance as we reset our promotional cadence this year and as we execute against a repeatable, scalable framework for consistently delivering great products. As excited as we are with our product direction, our impact would not be what it is without our unique ability to serve our community and build connections in ways that only FIGS can. We are seeing the payoff of our amazing top-of-funnel moments that started with some of last year's big brand splashes and have continued throughout 2025. Looking at some of our recent successes, let's start with what was a unique opportunity heading into this year's Emmy awards. Last call, we detailed our advocacy work in Washington, D.C. with actor Noah Wyle, work which went viral across our community. When Noah was then nominated for Best Actor for The Pitt, he challenged us to make a tuxedo for the Emmy that was as comfortable as the scrubs he wears onset. We stepped up to the challenge by creating a first-of-its-kind tuxedo. With subtle details and craftsmanship, we are proud to support Noah's desire to bring the healthcare community directly to the red carpet. As the night progressed and momentum built, we strategically aired our Where Do You Wear FIGS spot during the last commercial segment before the awards for Best Actor and Best drama were announced. This was executed perfectly as Noah and The Pitt went on to win both of those awards coming out of the break. On stage, Noah eloquently dedicated his award to anybody who's coming on shift tonight or anyone who's coming off shift tonight. This overall moment became among the most viral in our history with multiple best-dress nods for Noah and 175 total placements across traditional media and social, including over 30 top-tier press articles across fashion, entertainment and lifestyle outlets. Most importantly, our actions led healthcare professionals, our awesome humans, to feel seen in a way they rarely do on the world's biggest stage. Our brand work was just getting started as we continued our year-long celebration of ready-to-wear FIGS. Following the Emmys, we debuted our global installment of the campaign filmed across Tokyo, London, Mexico City and Los Angeles, showing how medicine is a universal language. We are excited to be able to amplify our message in key countries with upper funnel support. It is also important to highlight our work supporting breast cancer awareness. It's easy to highlight the commercial success of the campaign with our Epping Pink and Fight Club Pink color launches being one of our top-performing color drops in our history. The more important part, the harder part was showing the inspirational work of healthcare professionals, including Dr. Elisabeth Potter, a breast reconstruction surgeon from Austin, Texas. The success of our campaign underscored how much she resonates and is at the forefront of industry conversations in the medical community. It also reinforced the type of impact that we aspire to with Dr. Potter proclaiming, you guys listen, we feel represented and you care about what we're going through. The success of these campaigns are further proof points of how we strike a deep emotional chord with healthcare professionals through the stories we tell. This has always been part of the secret sauce at FIGS, but since our Olympics campaign in 2024, we've been on a run of our best top-of-funnel campaigns ever, and we're determined not to slow down. Not only are our campaigns resonating in unprecedented ways for the brand, but we are also matching this work with added sophistication in our measurement. Performance marketing tools are giving us added insight into when to lean into brand moments and how to optimize our messaging. Importantly, we still have considerable opportunities ahead as we think about leveraging unique views of healthcare professionals to better personalize their experiences. Finally, it's important to highlight that our great execution is bolstered even further by an industry backdrop that is returning to its pillars of fundamental strength that most other apparel industries can only dream of. This includes the replenishment-driven, largely non-discretionary and seasonless nature of our scrubwear that healthcare professionals return to over and over again. It also involves a massive industry that is among the fastest-growing brands in any sector with over 23 million U.S. and over 100 million international healthcare professionals. To put it simply, we are serving a strong industry with professionals that need uniforms to do their jobs. Raising the bar further in these foundational areas also helps fuel our efforts across our 3 emerging growth drivers: international, teams and community hubs. We are making important investments across all 3 of these opportunities in 2025, and each is expected to scale in importance in the years ahead. Starting with international, our expansion is a significant focus and one where we have a number of recent developments. With over 80% of global healthcare professionals located outside of the U.S. and driving less than 20% of our revenues, international remains a massive opportunity. We are rapidly expanding our footprint this year, jumping from 33 countries to nearly 60 planned international markets by the end of this year. We are driving this expansion in a disciplined way through 2 strategies, either go broad or go deep. To go broad, we are focusing on low-touch ways to open markets, leveraging technology and regional commonalities to efficiently expand. Following 12 new Latin American markets we announced last quarter, we are on the cusp of opening 11 new markets across the Middle East and Africa region. We know that healthcare professionals globally have the same awful experience as they used to have domestically, and this strategy is an easy way to begin to reshape expectations in many smaller markets while also informing potential future investments. With our go deep strategy, we're focusing on markets with more clearly defined opportunities and taking additional steps to more directly invest. For some of our more established markets like Canada, U.K. and Mexico, investments extend to infrastructure as we look to localize and scale. This includes adding in-market talent, brand marketing to drive awareness and logistics to drive more efficient operations and support profitable growth. This strategy also informs our approach to several new markets, including the launch of Japan in Q2. This market is trending well to-date and providing great early learnings with how to serve locally. We also took the same level of care as we opened South Korea in October. We are excited to announce today that we plan to debut in China through Tmall later this quarter. While near-term contributions of these 3 new markets are expected to be modest, we see the opportunity for each to be significant drivers of our long-term international growth story. We are also actively investing in our teams and community hub opportunities, solidifying each of their own foundation for meaningful growth going forward. With teams, we want to both capture the legacy demand for institutional-led buying and also influence behavior with great solutions to drive this mix even higher. To power these efforts, we have added talent to both nurture our great existing partnerships and also to better cultivate new ones. We also have a focus on unlocking seamless and customizable solutions for a wider range of institutions and are excited to begin deploying updated technology this quarter. With Community Hubs, we are excited to debut 3 new stores this quarter, starting with New York's Upper East Side planned next week and then followed by planned openings in Houston and Chicago. Each of these locations will apply key learnings from our first 2 stores and apply updated design and merchandising elements to enhance the overall experience. We continue to see the value of having a physical presence for the brand, particularly with nearly 40% of customers coming in new to the brand. We remain confident in our disciplined approach and are well-positioned to accelerate our cadence of openings in 2026. Before turning the call over to Sarah, I would like to reiterate how excited we are with our progress. As we have highlighted, the foundational pieces of our business are strengthening. Our community engagement has never been more impactful, and we see significant opportunities to sustain momentum in 2026 and beyond. Importantly, we will never lose our unyielding focus in support of the healthcare community. This is an intangible thing to measure, but one that defines our brand's leadership, caring, connection and authenticity. This is our non-negotiable. It's how we drive relevance and staying power. At the same time, we're applying more discipline, talent and rigor across all the other factors that drive our business. We are positioned well to continue our momentum and amplify the brand over the long term.

Thanks, Trina. Our year-to-date performance highlights the growing potential of the FIGS story as we more closely align our product strategy with our unique ability to drive impact for healthcare professionals. We are particularly encouraged to drive this high level of execution in a year where we had both a planned headwind with our promotional repositioning as well as an unplanned headwind with tariffs. As I'll discuss, we are excited to see the progress reflected in our full-year top and bottom line expectations that have moved markedly higher the past few quarters. First, let me start with details of our strong third quarter performance. Net revenues increased 8% year-over-year to $151.7 million, ahead of our outlook of flat to up 2%. As Trina highlighted, our performance was underscored by both scrubwear growth and U.S. growth, each reaching 2-year highs as well as the extremely encouraging strength and momentum across our business as usual selling period. These indicators continue to support our successful ability in resetting our promotional strategy this year, particularly with more aggressive action planned across the back half of the year. From a measurement standpoint, average order value increased 6% to $114, primarily driven by higher average unit retail due to product mix and a higher rate of full-price sales. Active customer growth has remained consistent throughout the year at plus 4%, pushing our active customer count to a company record of nearly 2.8 million. This growth comes despite our promotional reset, and we have seen momentum in our acquisition trends and sustained success in bringing lapsed customers back to the brand. We were also pleased to see our trailing 12-month measure for net revenues per active customer inflect positive for the first time in 3 years with 2% growth in the period to $209. By category, scrubwear grew 8%, representing 84% of net revenues for the period. Results were ahead of plan with strength in our core products supported by impactful color stories, strategic positioning in key styles and effective merchandising and marketing. Color launches and cadencing were successful in not only driving excitement to new offerings, but also energized our core colors. Looser-fitting silhouettes are increasingly resonating, particularly in bottoms, and we are leading and investing in these areas. Complementing our great assortment, we continue to drive cohesion with how and when we deliver and message to our customers, which is driving productivity. Non-scrubwear increased 7%, representing 16% of net revenues. We saw strong growth in underscrubs, which included new 3-quarter length versions of our popular Salta and Mercado styles and were inspired by customer feedback. Shoes rebounded from some of the executional challenges in last year's period and were supported by strong coordination with our color stories. We were excited to launch our ArchTek socks at the end of the quarter, which we believe will be a great core offering to address healthcare professional needs going forward. Notably, results also reflect the comping of some Olympics-driven newness in areas like outerwear and bags, but we remain excited with the pipeline of products in these key areas going forward. By geography, U.S. sales increased 8% to $127.3 million. This was our strongest performance over the past 9 quarters and continued to reflect balanced growth across both new and repeat customers. International net revenues increased 12%, led by particular strength in driving new customers. Headline growth was solid, but had some nuances that understated our overall strength. In particular, we had a more significant reduction in promo days relative to the U.S., which had an outsized impact on Canada and Australia, 2 of our larger markets. Nonetheless, we are excited as we look at our overall performance, including active customers up strong double digits, AOV up in all regions and ahead of the consolidated growth and fantastic business as usual growth. Gross margin for Q3 expanded 280 basis points to 69.9%. Key contributors to this year-over-year performance included lower discounts from the reduction in promotional days, improved return rates and processing, lower duties and reduced freight costs. These tailwinds were partially offset by higher tariffs. Results were significantly better than planned, driving our best quarterly performance since early 2023 with broad-based upside, including conservative sell-through assumptions of the mix of non-tariff goods and through our improved returns processing work. Our selling expense for Q3 was $35.8 million, representing 23.6% of net revenues compared to 27.5% last year. As a reminder, last year's third quarter included the majority of transition costs associated with the opening of our Arizona fulfillment center. In addition to lapping these costs, we drove continuous improvement here as we further optimize our business. We also saw improvements in shipping given our successful actions to optimize our carrier mix, improve pricing and drive strong service levels. Marketing expense for Q3 was $23.5 million, representing 15.5% of net revenues, down from 20.3% last year. The reduction in the spending rate primarily reflected lapping last year's strategic investment to outfit the Team USA medical team at the Olympic Games and efficiency in marketing spend. G&A for Q3 was $37.1 million, representing 24.5% of net revenues compared to 25.3% last year. Consistent with prior quarters, the lower G&A expense rate was primarily due to a meaningful reduction in stock-based compensation expense, partially offset by higher people costs. In total, our adjusted EBITDA for Q3 was $18.9 million with an adjusted EBITDA margin of 12.4% compared to 3.4% last year. Net income for the quarter was $8.7 million or diluted EPS of $0.05 compared to net loss of $1.7 million last year or diluted loss per share of $0.01. On our balance sheet, we finished the third quarter with a strong net cash, cash equivalents and short-term investment position of $241.5 million. Inventory increased 23% year-over-year to $151.2 million or up 20% on a unit basis. Several factors are impacting the buildup of inventory. As indicated last quarter, it starts with our action to support both product introductions and deeper investments in key styles, which we believe has helped drive some of the upside opportunity during the back half of the year. We also saw a higher-than-planned level of in-transit inventory, reflecting earlier timing given some of the process improvement we have been working to drive across the supply chain. While the gap between unit growth and dollar growth was modest during the quarter, we expect the growing impact of tariffs will contribute to a wider spread in Q4. On the capital allocation side, we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program. Capital expenditures for the quarter were $2.9 million, primarily related to our 3 new community hubs, and we now expect approximately $7 million for the full-year. Now turning to our updated outlook to close out the year. Full-year 2025 net revenues are now expected to grow approximately 7% year-over-year, ahead of our prior outlook of up low single digits. On top of our strong Q3 results, we see several factors supporting even better implied growth in Q4. To start, we had fantastic momentum coming out of the third quarter, starting with our hugely successful breast cancer awareness campaign and extending into our business as usual selling days. As I also mentioned, we are investing more strategically in our inventory position to ensure better availability of key products and styles. This also drives what we expect to be our best balance of new colors and styles offered year-to-date, which is also proving effective at supporting the core business. We are excited to continue to launch this newness with the same discipline that has supported our strong productivity this year. Finally, we will complete our year-long promotional reset this quarter, though do not expect the corresponding revenue drag to be as meaningful as Q3. Looking at gross margins, our full-year 2025 outlook has improved from our prior call and now expect only a modest year-over-year decline from last year's level of 67.6%. A large part of the sequential improvement comes from the Q3 upside, though we do now expect less overall drag in Q4 as well. As a reminder, we faced 2 sizable headwinds in Q4. First, we expect ramping sequential tariff pressure as more impacted goods average into our product costs. We continue to assume added tariffs of 20% in Vietnam and 15% in Jordan, which combined drive nearly all of our production. Second, we are also lapping a sizable one-time benefit from duty drawback claims in the year-ago period. However, similar to Q3, we have several items that are helping offset these pressures, including lower discounts, improvements in our returns processing and freight. Additionally, we are starting to get better scale on certain styles in conjunction with demand. The full-year SG&A story continues to show strong leverage following last year's outsized investment. While Q4 is still expected to show some expense rate deleverage, the magnitude has been reduced primarily by the impact of our improved top line assumptions across each of our expense buckets. More specifically, this quarter, selling expenses should continue to benefit from our scaling efforts and tariff mitigation strategies. The marketing expense rate is planned to meaningfully increase, reflecting both lower spend rate from the prior year as well as our ramping support for the forthcoming 2026 Winter Olympics. The G&A rate will continue to reflect lower year-over-year stock-based compensation, partially offset by higher planned people costs. Overall, we are updating our full-year adjusted EBITDA margin to approximately 10.3% compared to the prior range of 8.5% to 9% and ahead of the original outlook of 9% to 9.5%. We also want to provide several high-level comments that pertain to our early 2026 planning. First, on net revenues. We are committed to growing the business in 2026, which should continue to be supported by strong current momentum and ongoing process improvements. Additionally, we expect the investments we have made in our 3 emerging growth drivers, international teams and community hubs will begin to have more material impact. While not all of these factors will have linear contributions, we are excited to further unlock these businesses given our strengthening core. Next on tariff mitigation. As we have discussed, we have a number of levers across both product costs and SG&A that we have already pulled and some that remain in consideration. We have already seen strong execution as we optimize costs across inbound and outbound shipping and at our fulfillment center, benefits that we plan to extend into 2026. Our supplier negotiations have been productive and are expected to yield additional savings next year. While we do not plan to take any pricing action in 2025, it remains a lever for next year. Finally, on margins, the bar for 2025 adjusted EBITDA margins has been raised despite an estimated unmitigated tariff drag of approximately 110 basis points. However, with an estimated annualized unmitigated impact of closer to 440 basis points, we expect that the majority of tariff headwinds is still ahead of us in 2026. As such, we will use our ongoing planning process to continue monitoring the overall environment while also balancing our ongoing discipline, the full range of tariff mitigation as well as strategic investment levels. While it is too early to provide specifics, we do think it is important to note that we see opportunity for 2026 adjusted EBITDA margins to be within range of current 2025 expectations. Overall, we are energized to be in such an incredible industry where serving healthcare professionals is paramount. With improving profitability and ample balance sheet flexibility, we believe we are positioned to remain on offense and drive the sustainable long-term growth story we see ahead. I will now turn the call back over to the operator for Q&A.

First question is from the line of Bob Drbul with BTIG.

Nice quarter. A couple of questions for you. Just on the gross margin performance this quarter, I guess when you look at it a little bit longer term into next year, but I would even say when you look at your historical results, given your ability to sort of navigate a lot of the tariffs, can you just talk us through how you envision that segment, that line item of the business over the next several years, I guess, at this point?

Bob, yes, so we saw a really great gross margin for this quarter, up to 69.9%. Obviously, that's been quite higher than where that rate has been. We did see some components there, some that will continue into the future, but some that are unique to the quarter. We are seeing improved discount rates from the pullback in our promo strategy, and we'll see that continue into Q4 as being a benefit year-over-year. Longer term, that increase year-over-year will moderate as that promo strategy normalizes into next year. We've been working hard with our new returns partner and seen some good improvement in our refurbishment rates. Then there was a bit of nuance in how some returns processing happened with the prior year DC transition. We do expect some of those improvements in refurbishment rates to continue going forward, but not at the same rate that we saw in the quarter. We've been really working hard to optimize our inbound rates, and we saw the benefit of that this quarter, and that should continue into next year until we annualize that. Obviously, tariffs are the biggest piece, and so that will have a 440 bps total impact next year or up 330 bps. There's still some unknowns around how tariffs will remain. We'll continue to monitor that, but feeling good with our measures of how we're able to continue to find efficiencies within margin and carry that into future to continue to work on offsetting those tariffs.

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

Congrats on the strong execution. Can you expand on the demand that you saw during the business as usual days when you didn't offer promotions? How is Q3 performance on those days relative to where it was in the first half? Second, given tariffs are intensifying and demand is holding up well, what do you need to see to revisit the pricing lever for next year?

Great. In terms of our business as usual days, we've seen acceleration each quarter in those business as usual days. Really great to see that. It's really from the broad-based performance that we're seeing across both the U.S. and international as well as both scrubwear and non-scrubwear. Really happy with that performance, and it's really that acceleration that has had revenue growth rates overall accelerate each quarter. Really happy with what we're seeing there. Then I think you asked on pricing, and so our pricing remains consistent with what we've shared previously. Several considerations that we've shared before that still remain, which is healthcare professionals need our products to do the critical work that they do. Nearly 2/3 of our customers make under $100,000 a year. We have 16 core styles that generate the majority of our revenue. Our ability to simply flow through higher prices into new seasons or new styles is limited. We want to be prudent, and there is still some open-endedness on where tariffs will land. We've been working really hard on our tariff mitigation and these efforts include optimizing our supplier base, negotiating discounts with our suppliers and driving efficiency in inbound and outbound. The great news is that we've seen strong progress on these measures to date. We're not going to be taking pricing in 2025. If we were to take any future pricing, that decision would be held to share with our healthcare professionals first so that we can control the narrative and deliver with the care that our healthcare professionals deserve.

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

Trina, Sarah, I was hoping we could discuss the trends that you're seeing in AOV, understood that some of this is coming from the promo reset, but how are you thinking about the opportunity for AOV to contribute to revenue growth as you look ahead into 2026? Similarly, can you talk a little bit about the customer trends that you're seeing? Are your customers engaging more frequently? Are they staying for longer? Are you seeing better reactivation trends or better new acquisition trends? Are you seeing any trends specifically within any age or income cohorts given the broader macro environment?

Great. I'll start with the question on AOV. In terms of AOV, we've been seeing that increase each quarter and saw a fairly large increase in the current quarter, up 6%. That is driven from both mix shift in our product as well as the pullback in our promotional efforts. I think as we think about 2026, we still think there is some opportunity for AOV to continue to increase. That's largely with how we're thinking about product mix and continuing to build out that full assortment head to toe of that healthcare professional and continue to drive into a higher wallet share that we know is available to us.

I'll just add in terms of the trends we're seeing in our consumer. Brooke, as you know, we don't serve a different consumer than the average apparel or even e-commerce company. Our customer works in an industry that has a real level of stability. People need healthcare workers. They're not going anywhere. If anything, our industry is really accelerating. It's the healthcare jobs that are the fastest-growing job segment. They're growing 3 times faster than the overall job market. The demand for healthcare professionals is expected to remain high. A lot of the trends that we've seen in the quarter, some of it are the fundamentals of the industry and obviously, what we're doing on the product side, on the marketing side to execute at the level that you're seeing. To your question around the trends we're seeing, we're seeing our customers come back. If you look at repeat frequency and you kind of remove the impact of the promotional pullback, we're seeing repeat frequency up significantly. We're seeing our reactivations up significantly, and we're seeing actually cohorts performing across all income levels. Really great trends across the board. We feel really confident that the post-COVID overhang is easing, and we're operating in a much more normalized environment, and it's great to see.

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

It's probably just a follow-up from some of the earlier questions. Just wanted to hear a little bit about what's driving the acceleration that you're implying into the fourth quarter despite the tougher comparison year-over-year. I just wanted to hear a little bit more about customer strength. It sounded just like Trina, like you just said, even your lower income cohort is still performing well. I just wanted to hear you kind of talk a little bit more about the drivers of the acceleration into the end of the year here.

Matt, yes. I mean, we've been seeing some really broad-based and healthy trends that have continued to progress as the year has gone on and see the opportunity for that to continue into Q4. We feel good with how our product and marketing is set up for the fourth quarter. We think we can get there with continuing the trends that we've seen. We've been seeing that new customer acquisition has turned positive in terms of growth for the last 2 quarters and seeing that momentum also really come from our domestic business, which carries weight in terms of the overall growth. We're seeing some great trends in the business as usual days that has been accelerating. All of those components have been captured in how we're thinking about the fourth quarter upcoming. From a promotional perspective, our stance has still remained with how we had seen before. The improvement in revenue growth expectations from Q4 really comes from our business as usual days. No change in how we've been thinking about promo. For Q4, the focus will be on Black Friday, Cyber Monday, but similar to previous quarters, there will be a pullback in our efforts versus the prior year.

Can I ask about community hubs? You guys sounded more excited, I guess, than usual about the opportunity to lean in there going into '26. Just wanted to hear a little bit more about the potential drivers of growth with Community Hub and where we are with store formats, how they're set up for growth next year.

We're very enthusiastic about our community hubs and are planning to significantly increase their number. Currently, we have a community hub in Century City, Los Angeles, and in Philadelphia’s Rittenhouse Square. We are soon to open another in New York City on the Upper East Side at 69th and 3rd, right in the heart of a medical area with renowned institutions like Memorial Sloan Kettering and New York-Presbyterian Weill Cornell all nearby. In Houston, we’re setting up close to the Texas Medical Center, the largest medical complex in the world, which employs 120,000 people and hosts millions of patient encounters annually. Lastly, in Chicago, we’re situated less than two miles west of the loop in the Illinois Medical District, which includes four major hospital systems and various healthcare facilities. These community hubs will open through the remainder of 2025, and as of today, we are thrilled about the progress. From our initial two hubs, we’ve learned that 40% of customers are new to the brand, and 30% of visitors are becoming omnichannel customers, returning both in-store and online. We are observing significant growth in the markets where we operate. Our experiences have led us to revise the hub format, enhancing space usability, inventory display, and presentation of our products. Customization is also a focus, as many customers desire embroidered scrubs with their names and logos. Engaging with our community in person to allow them to experience our products is incredibly valuable, and we are genuinely excited about these developments.

Next question is from the line of Brian Nagel with Oppenheimer.

Nice quarter. Congratulations. I've got a couple of questions. I guess one near term and then one long term. On the near-term side, as we look at the sales acceleration in the business, particularly what's happened here in the third quarter, then as you're telegraphing in the fourth quarter, to what extent is that sales acceleration being driven by new products, the new product introductions? Then my follow-up question, I guess, is longer term, a little bit longer term in nature, but now as we're watching the top line of FIGS start to solidify, you're seeing the sales growth. Is there any updated thinking on how the margin – particularly, the EBITDA margin profile of the business should evolve over time? Should we have the potential to get back to the peak operating margins?

Great. Regarding your question about whether the growth is attributed to new products, we're actually really excited to observe that most of the growth is originating from our core products and even from our core colors. This forms a solid foundation for the long-term health of our business. We have seen growth in some of our newer styles and colors, and it's evident that when we highlight this newness and innovation, it positively impacts our overall core. It’s encouraging to see that we can maintain this momentum for sales growth in the long term. Concerning EBITDA for next year, we have committed that our adjusted EBITDA margin will align with our guidance for 2025. We are facing a 330 basis points tariff headwind year-over-year for next year, which we plan to counteract to remain within this year’s range. Our capacity to significantly offset that challenge comes from the efficiency improvements we are implementing in the business to create savings while continuing to invest for the long term. Next year, it will be more challenging to expand margins because of the tariffs. However, in the long term, we believe there is a pathway for this foundation to move forward, supporting growth in both the top line and the bottom line.

Next question is from the line of Dana Telsey with Telsey Group.

Nice to see the progress, Trina. Two things. As you think about the Olympics coming up and the marketing for the Winter Olympics, what will be the same or different than what you did for the Olympics in Paris, knowing that summer, this is winter. What do you see as the difference? One of the interesting things in the quarter is the sequential improvement in the growth rate of the non-scrubs business, up high singles compared to the slight decline last quarter. What are you seeing there? What categories are resonating?

Thank you so much, Dana. We're really excited about our continued partnership with Team USA. As you know, we're the first company ever to outfit a medical team for any country globally, and we're really proud to be able to do that again for these upcoming winter games in Milano Cortina. There's a few things that we really learned and we're going to be applying from our lessons in Paris. First one is that we're finding more ways to have an impact. We learned a lot on the ground. We've created an even better, if you can imagine, a more dedicated space at the Team USA, welcome experience. That's really exciting. We have a brand-new fabrication called FIBERx. It's really made for healthcare professionals in more high-impact environments like what you would be doing outside in winter and especially for the medical professionals supporting our athletes during the winter games. I do believe this fabrication is going to go well beyond that to serving healthcare professionals within hospitals and offices and clinics, and it's a really, really great lightweight durable fabric that is awesome. You're going to love it. Then finally, I think we've learned a lot in terms of how to optimize our marketing spend and how to ensure that we're really balanced across the funnel. I think you've seen that throughout this year, really taking these very strong top-of-funnel marketing campaigns that, in some ways, are breaking the Internet and how do we bring that all the way down to our healthcare professionals that are on social or across channels and to meet them where they are with really strong product that serves their needs and really strong messaging that resonates and really shows the best of them back to them. Then your question on non-scrubwear. In Q2, the growth rate was negative, and that was really impacted by comping over the same quarter of the prior year that had some additional non-scrubwear launches. What we've seen with category performance for non-scrubwear is that it can vary based on promotional comparisons, the impact of new styles in different quarters and our work to reinvent a few areas. Happy to see that we inflected positive in non-scrubwear this quarter. Even still, we are comping against the stronger quarter last year from where we had Olympics. We had strong accessories and outerwear growth from Olympics last year that doesn't annualize this year. I would say that our non-scrubwear did perform to our plan and has outperformed the first half. We've been happy to see consistent attachment rates and really excited about the opportunity ahead for many of the categories within non-scrubwear.

Next question is from the line of Ashley Owens with KeyBanc Capital Markets.

Congrats as well. Maybe just first to touch on international. With this now being 16% of revenue of the quarter, if we kind of parse that out and think of that as just shy of $100 million run rate for the business, could you just walk us through some of the next building blocks as to how you're planning to scale these regions? I know regions like Japan, South Korea are still really new. China is obviously coming on board. Would just be curious on thoughts as to if international could sustainably grow at double digits for the next several quarters and how you're thinking about that long-term mix target there?

We have a two-pronged strategy for expanding our reach. It's exciting to note that we'll be in 60 markets by the end of this year, thanks to our ability to utilize technology and our local insights to efficiently open new markets. In the third quarter, we launched 12 new markets, including Argentina, Bolivia, Chile, and Ecuador, and in the fourth quarter, we introduced several countries in the Middle East and Africa. The second part of our strategy focuses on deepening our presence in certain larger markets, such as Canada, Mexico, the U.K., and Australia. In these regions that have achieved significant scale, we can invest more in brand awareness and engage more deeply with our ambassadors, through events, on-the-ground support, and more. We are excited to continue our growth in both emerging markets and established ones that have reached critical mass. Our mission is to improve the experience of healthcare professionals worldwide by enhancing their uniform options.

Then just quickly to follow-up. Maybe on the return rate improvement, if you could help us contextualize how much of the progress there benefited margin for the quarter or the magnitude of the decline you saw? Then just following up, moving down the P&L, any other quantifiable cost savings from fewer restocks and reverse logistics activity that you'd be willing to share? Yes. Within returns, we've seen overall improvement in our return rates, and that is largely attached to some of our improvements to fit. We definitely saw an outsized benefit related to returns processing. It is quite meaningful of a bump that we saw in Q2. You can really see how the implied guidance for Q4 does step down. That's both with tariffs and mix shift into non-scrubwear that seasonally happens in Q4, and not recognizing the same degree of benefit on returns that we saw in Q2.

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

Obviously, a lot of upside to on a few line items in Q3. And I just want to go back to the prior question on the fourth quarter guidance because it does assume quite a bit of the momentum on the margin level doesn't continue. Can you just unpack the gross margin and then maybe the selling and G&A in fourth quarter and the expectations there, given you have a lot of momentum coming out of Q3 on the top line and the margin profile? Just curious what's maybe changing in Q4.

Yes, we expect a significant increase in the tariff impact moving from Q3 to Q4. The incremental tariffs in Q4 will be higher, and this trend will continue into 2026 as a larger portion of our inventory will reflect the full tariff amounts. We should also consider seasonality, as a significant part of our business in the fourth quarter consists of non-scrubwear, which has a lower margin rate. You can observe this seasonal shift by looking at the non-scrubwear proportions in Q4. This planning will create some challenges for the quarter. Additionally, it’s important to note that in Q4 of last year, we benefited from a substantial duty drawback that was a one-time occurrence, so that will impact year-over-year growth in Q4 as well. Regarding the overall profit and loss perspective, we have seen improvements in our selling costs each quarter, and we anticipate this to continue in Q4. We’ve done excellent work in negotiating with vendors and implementing multi-carrier strategies, which will help enhance our service. In terms of marketing, we expect an increase in the marketing rate in Q4 due to our preparations for the Olympics scheduled for Q1 of 2026. For general and administrative expenses, we continue to see a decline in our stock compensation costs year-over-year, a trend expected to persist into Q4. These elements represent the key factors influencing our expectations for Q4.

This is Angus Kelleher on for Adrian. Congrats on a solid quarter. I wanted to ask how you are balancing the elevated inventory growth against the plan to pull back on promotions. What safeguards are in place to avoid margin pressure or excess stock? More broadly, how do you feel about the composition of that inventory?

Yes. Thanks. We've been intentionally investing in inventory to support demand and improve our core in-stock levels. We've really seen improvement in those in-stock levels, which has been supporting our sales growth. We did have an impact from higher-than-expected in-transit inventory in the quarter, which we do view as positive as it does result from the work we're doing with our partners to drive consistency and execution, and it's ultimately driving shorter lead times. If you were to adjust for that higher in-transit, our unit growth would be low double digits. So much more in line with our Q3 growth and our Q4 guide, while also giving us the opportunity to potentially capture upside. We're effectively getting product more efficiently, and we do need to adjust. As we look at the go forward, we would expect some moderation in unit growth, and that's really just as this in-transit timing adjusts. Then from a dollar growth perspective, we actually expect that to increase into the fourth quarter, and that's really a function of those tariffs impacting that inventory that's coming in, so our inventory is higher. We do have some pockets of inventory that we are working down. We've got some older fit profiles and areas we intend to reinvest in future seasons. We have made some good progress here, including with our targeted promotional efforts and selective write-offs we were able to do. We do continue to make progress here and in the quarters ahead. We're working on improving greater discipline and efficiency to our buying process. Over time, we do expect that inventory balance to come down over 2026 despite the higher tariffs.

First, Angus, I want to thank you for not ending on the inventory question. I appreciate you bringing up Teams because I’m eager to discuss our Teams business. We have been concentrating on investing in this area to ensure a solid foundation for the future. We've shared our outbound strategy aimed at attracting new institutions interested in standardizing and branding their teams, and we've achieved significant progress. The most exciting development is our upgraded technology, which we mentioned earlier in the call. This platform is designed for healthcare teams of all types and sizes, providing organizations with greater flexibility and functionality for purchasing that aligns with their needs. We are working toward becoming the go-to resource for all healthcare professionals, moving beyond traditional group ordering. This will introduce new features such as sip-ins, gifting, and various discounts based on employee type. We are thrilled about rolling out this enhanced Teams experience, which will offer our complete product range and support international customers, which we haven't done before. We believe this will unlock substantial growth opportunities in the future. You also inquired about the margin.

The teams profitability is accretive bottom line. It has a lower gross margin profile just to the offering of a higher discount. Then operating expense structure is much more favorable with the efficiencies, both within outbound shipping as well as marketing. I'm excited with the overall economics that this business provides.

There are no additional questions waiting at this time. I'll pass the call back to Trina Spear for any closing remarks.

Thank you all for joining us. Really excited to speak with you all, and we'll talk again soon.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.