FIGS, Inc. (FIGS) Q3 2025 Earnings Call Transcript

Good afternoon. Thank you for attending the FIG Third Quarter Fiscal 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. All lines can be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I'll like to pass the conference over to our host, Tom Shah, Senior Vice President of Investor Relations. Tom, please go ahead.

Good afternoon, and thank you for joining us to discuss FIG's 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 Altred, 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 risk 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, in which we undertake no obligation to update. Finally, we will discuss certain non-GAAT metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAT measures to the most comparable GAAT measures are included in the shareholder presentation we issued today. And 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 two 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, scrubware, 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 possibilities are going to be a part of our plan. 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 care of headwinds. Overall, we are executing exceptionally well against our expectations and driving better consistency. And 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 connection. 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 four 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 Phynex 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 Phynex fabrication debuted in Q1 for environments where comfort and stretch are paramount. And we have seen momentum build as we have methodically expanded offering 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 outfitting healthcare professionals from head to toe. For example, our recently introduced ArchTech 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 products 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 Wiley, work which went viral across our community. When Noah was then nominated for Best Actor for the Pit, he challenged us to make a tuxedo for the Emmys that was as comfortable as the scrubs he wears on set. We stepped up to the challenge by creating a first-of-its-kind tuxedo. With subtle details and craftsmanship, we were 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 fig 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 pit 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 to 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 wear-to-wear figs. Following the Emmys, we debuted our global installment of the campaign films across Tokyo, London, Mexico City, and Los Angeles, showing how medicine is a universal language, We were 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. But the more important part, the harder part, was showing the inspirational work of healthcare professionals, including Dr. Elizabeth 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 of 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 And 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 could only dream of. This includes the replenishment-driven, largely non-discretionary, and seasonless nature of our scrubware that healthcare professionals return to over and over again. It also involves a massive industry that is among the fastest growing for any sector with over 23 million U.S. and over 100 million international health care 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 three emerging growth drivers, international, teams, and community hubs. We are making important investments across all three 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. And we are driving this expansion in a disciplined way through two strategies that 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 officially 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, UK, 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. And we are excited to announce today that we plan to debut in China through Tmall later this quarter. While near-term contributions of these three 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 foundations 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 uncustomizable 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 three 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 two 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. With that, I'll pass it over to Sarah.

Thanks, Trina. Our year-to-date performance highlights the growing potential of the fig 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. And 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 two quarters. But 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 scrubware growth and U.S. growth, each reaching two-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 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 three years, with 2% growth in the period to $209. By category, scrubware grew 8%, representing 84% of net revenues for the period. Results were ahead of plan with strength in our core product, supported by impactful color stories, strategic positioning in key styles, and effective merchandising and marketing. Color launches and cadence day 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. And 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-scrubware increased 7%, representing 16% and net revenues. We saw strong growth in underscrubs, which included new three-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. And we were excited to launch our architect 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 outer wear and bag, but we remain excited with the pipeline of products in these key areas going forward. By geography, US sales increased 8% to $127.3 million. This was our strongest performance over the past nine quarters and continued to reflect balanced growth across both new and repeat customers. International net revenues increased 12%, led by particular strengths 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, two 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. Growth 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% in 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 5 cents compared to net loss of 1.7 million dollars last year or diluted loss per share of one cent on our balance sheet we finished the third quarter with a strong net cash cash equivalent and short-term investment position of 241.5 million dollars inventory increased 23 percent year-over-year to 151.2 million dollars or up 20 percent 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 dollars 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 dollars available for future repurchases under our current share repurchase program capital expenditures for the quarter were 2.9 million dollars primarily related to our three new community hubs and we now expect approximately seven million dollars 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 this sequential improvement comes from the Q3 upside, though we do now expect less overall drag in Q4 as well. As a reminder, we face two 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. And 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 investments. While Q4 is still expected to show some expense rate to leverage, 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 and the gna rate will continue to reflect lower year-over-year stock-based comps partially offset by higher planned people costs overall we are updating our full year adjusted ebitda margin to approximately 10.3 percent compared to the prior range of 8.5 percent 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 that investments we have made in our three 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. And while we do not plan to take any pricing action in 2025, it remains a lever for next year. And 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. And 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. Operator?

If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one.

As a reminder, if you're using a speakerphone, to your member to pick up your handset before asking your question we will pause here briefly as questions registered first question is from the line of bob trouble with btig if you want that open hi uh good afternoon and uh nice quarter thank you bob just got a couple welcome uh a couple questions for you just on you know on the gross margin performance this quarter i guess when when you look at it a little bit longer term, you know, in the next year, but I would even say, you know, 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, you know, that segment, you know, that line item of the business over the next several years, I guess, at this point?

Hi, Bob. Yeah, 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. So, you know, 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. But, you know, longer term that, you know, 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 seeing some good improvement in our refurbishment rates. And then there was a bit of nuance in how some returns processing happened with the prior year D.C. transition. So 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. And, you know, 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. You know, obviously, tariffs are the biggest piece. And so, that will have a 440-bit total impact next year or up 330 bits. And, you know, there's still some, you know, unknowns around how tariffs will remain. so 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 thank you very much good luck thank you for your question next question is from the line of rick patel with raymond james hey good afternoon and congrats on the strong executions um can you uh expand on on the demand that you saw during the um the business as usual

days when you didn't offer promotions you know how was q3 performance uh on those days relative to where it was in the first half and second given tech are intensifying and demand is holding up well what do you need to see to revisit the pricing lever for next year great so in terms of our business as usual days, we've seen acceleration each quarter in those business as usual days.

So really great to see that. And it's really from the, you know, broad-based performance that we're seeing across both the U.S. and international, as well as both, you know, scrubware and non-scrubware. So really happy with that performance. And it's really that acceleration that has you know had revenue uh growth rates overall accelerate each quarter um so really happy with with what we're seeing there um and then you know you think you asked on pricing um and so you know our our pricing um remains consistent with what we've shared previously um you know several considerations that we've shared before that still remain which is you know healthcare professionals need our products to do the critical work that they do nearly two-thirds of our customers make under a hundred thousand dollars a year and we have 16 core sales that generate the majority of our revenue so 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. So, the great Great news is that we've seen strong progress on these measures to date. We're not going to be taking pricing in 2025, and 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.

Thanks very much.

Thank you for your question. Next question is from the line of Brooke Roach with Goldman Sachs. Your line is now open.

Afternoon, and thank you for taking the question. 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 and are you seeing any trends specifically within any age or income cohorts given the broader macro environment thank you great i'll start with the question on AOV um so you know in terms of AOV we've been

seeing that increase each quarter and saw a fairly large increase in the current quarter up six percent um that is driven from you know both mix shift in our product um as well as the pullback in our promotional um efforts and so you know i think as we think about 2026 we still think there is some opportunity for AOV to continue to increase. And that's largely with, you know, how we're thinking about product mix. And, you know, 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.

And I'll just add in terms of the trends we're seeing in our consumer. You know, Brooke, as you know, we don't, you know, we serve a different consumer than the average apparel or even e-commerce company. Our customer works in an industry that has a real like level of stability. People need healthcare workers. They're not going anywhere. And if anything, our industry is really accelerating. It's the healthcare jobs are the fastest growing job segments they're growing three times faster than the overall job market and the demand for healthcare professionals is expected to remain high and so you know a lot of the trends that we've seen in the quarter some of it is this 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 and so if you even your to your question around like 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. So really great trends across the board. And 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 thanks so much i'll pass it on thank you for your question next question is from the line of matt coranda with raw capital you know it's going to open you guys it's probably just a follow-up from some of the earlier questions but just wanted to hear a little bit about what's driving the acceleration that you're implying into the fourth quarter uh despite the tougher comparison year every year i just wanted to hear a little bit more about customer strength that 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 in the end of the year here.

Hey Matt yeah so 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. And so, you know, we feel good with, you know, how our product and marketing is set up for the fourth quarter. And we think we can get there with, you know, continuing the trends that we've seen. So we've been seeing that new customer acquisition has turned positive in terms of growth the last two 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. So all of those components have been captured in how we're thinking about the fourth quarter upcoming um from a promotional perspective our our stance has still remained with how we had seen before so you know the the improvement in revenue growth expectations from q4 really comes from our business as usual days so no change in how we've been thinking about promo and and for q4 you know the focus will be on uh black friday cyber monday um but you know similar to previous quarters there will be a pullback in our efforts um versus the prior year okay helpful uh can i ask about community hubs you guys sounded more excited i guess uh than usual

about the opportunity to lean in there uh going into 26 just wanted to hear a little bit more about uh potential drivers of growth with community hub and where we are with store formats how they're set up for for growth next year sure thanks Matt so we're really excited about our community hubs we're about to more than double the amount that we have we only have a community hub in Century City in Los Angeles today and in Philadelphia and Rittenhouse Square and we're about to open New York City on the Upper East Side at 69th and 3rd this you know we're right in what's called Hospital Row, which is incredible. So you have Memorial Sloan Kettering, you have the Hospital of Special Surgery, New York Presbyterian, Weill Cornell, Rockefeller. These are powerhouse healthcare institutions that are literally at the same intersection of where we are. Houston, we're opening right near Texas Medical Center, the world's largest medical complex. It million patient encounters a year over a hundred and eighty thousand surgeries a year and so Houston incredible healthcare professional you know city and it's a great place to be and we're really excited finally in Chicago we're located less than two miles west of the loop we're in Illinois Medical District it's one of the largest urban medical district clusters in the United States four major hospital systems, two medical university campuses, 40-plus healthcare-related facilities. And that's just – those are just opening the rest of 2025, and it's November 6th today. So couldn't be more excited. We're taking our learnings from what we've seen with our first two hubs. 40% of customers are still coming in new to the brand. 30% of customers that are coming into our community hubs are becoming omni-channel customers, you know, coming back into the stores, coming back to us online. So really strong, and we're seeing really strong incrementality in the markets that we're in. And so took a lot of the learnings from our two hubs. We've redone the format, the space, how much, you know, how much inventory we can get on the floor, how we're approaching our color drop stories, our newness, our layering, our fit, and how we can showcase that in a new and original way. And finally, customization, right? Everyone wants their scrubs embroidered with their name and their logo so they can tell the world who they are and what they do. And so these are just, you know, being in person with our community, having them feel and touch and experience our product and our brand is, you know, it's it's so amazing and so important and we're really excited all right very exciting i'll leave it there thank you thanks matt thank you for your question next question is from the line of brian nagle with oppenheimer's you want to open good afternoon nice quarter congratulations thank you so i've got um a couple questions i guess one nearer term and then one long term so on the nearer term side as we look at this the sales acceleration the business as particularly what's

happened here in third quarter then as you're telegraphing the fourth quarter you know to what extent is that sales acceleration being driven by new products, the new product interactions? And 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 FIG start to solidify, we're seeing the sales Is there any updated thinking on how the margin, particularly like an EBITDA margin profile of the business, should evolve over time? Should we have the potential to get back to the peak operating margins?

Great. So in terms of your question on is the growth coming from new products, I mean, actually, what we're really excited to see is the majority of the growth is coming from our core products, and even in our core colors. So that's, you know, a great foundation for the long-term health of our business. So, you know, obviously we've seen growth in some of our newer styles and in our color, and it's really showing that when we showcase some of that newness and innovation, it actually drives the halo effect to our overall core. So really great for us to see there that we have the ability to continue that momentum longer term from a sales growth perspective. In terms of EBITDA for next year, for now we've made the commitment that our adjusted EBITDA margin rate would be within range of our guide for 2025. And so we do have 330 bits of tariff headwind year over year into next year. So we would be offsetting that in order to stay within range of this year. And so our ability to, you know, meaningfully offset that is from improvements that we are making in the business to be more efficient, to drive into savings, you know, while still being able to invest for the longer term. And so, you know, we'll have some harder ability to expand margin next year just due to the tariffs.

But, you know, longer term, we see the path for you know this foundation to continue to go forward and ask for uh you know to drive growth both top line and uh into bottom line i appreciate it thank you thank you for your question next question is from the line of dana telsey with telsey group you know is that open hi good afternoon everyone and nice to see the progress gina two things as you think about the 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 a difference? One of the interesting things in the quarter is the sequential improvement, 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.

Thank you so much, Dana. So 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 Milan-Cortina. So 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, and more dedicated space at the Team USA welcome experience. So that's really exciting. We have a brand new fabrication called FiberX. It's really made for healthcare professionals in, you know, 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. And 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. And I think you've seen that throughout this year, really taking these very strong top funnel marketing campaigns that in some ways are breaking the internet and how do we you know bring that all the way down to you know our healthcare professionals that are on social or on 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 and I think that's what this campaign is going to do again.

And then your question on non-scrubware 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-scrubware launches. So what we've seen with category performance for non-scrubware 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. I'm happy to see that we inflected positive in non-scrub wear this quarter. And even still, we are comping against the stronger quarter last year from where we had Olympics. So we had strong accessories and outerwear growth from Olympics last year that doesn't annualize this year. And, you know, I would say that, you know, our non-scrubware 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-scrubware. Thank you.

Thank you for your question. Next question is from the line of Ashley Owens with KeyBank Capital Markets. Your line is now open.

Hi. Great. Good afternoon. and congrats as well. But maybe just first to touch on international with this, with this not being 16% of revenue of the quarter, you know, if we kind of parse that out and think of that as just shy of a hundred 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's obviously coming on board, but would we just be curious on thoughts as to you know if international could sustainably grow at double digits for for the next several quarters and how you're thinking about that long-term mixed target there yeah i mean we have a two-pronged strategy actually in terms of where we go abroad and where we go deep and you know it's been really um exciting to see that we'll be at 60 markets by the end of this year um and that's driven by our ability to uh you know leverage both technology and our understanding of each region and use the commonalities across regions to open up markets very efficiently. And so if you think about, we just, in Q3, we opened up 12 new markets, Argentina, Bolivia, Chile, Ecuador, I won't list them all, but you can get that. And then in the fourth quarter, we opened up a number of countries in the Middle East and in Africa. So that's really exciting and then to your point how do we how do we go deep right that's the second uh part of the strategy uh where once certain markets reach scale think about canada mexico uk australia we're able to really um invest more in in the brand and brand awareness and um really localized deeply uh deeper engagement with our ambassadors with events um in market support and so uh and having talent on the ground in the in these places and so it's very exciting uh to continue to build out um you know in in both in in you know newer markets but also really go deep in these larger

markets that have hit what i would call critical mass and so um you know no matter where you live uh prior to figs you had this horrible experience um with your uniform and so our goal is to get some more healthcare professionals around the world and help change the game for them okay got it that's super helpful and then just quickly to follow up um maybe on the return rate improvement if you could help us contextualize how much of the progress there benefited margins of the quarter or the magnitude of the decline you saw and then just following up moving down the pnl any other quantifiable cost savings from fewer restocks and reverse logistics activity that you'd be willing

to share thank you yeah so within returns uh you know we've we've seen overall improvement in our return rates and that is largely attached to uh you know some of our improvements to fit but we definitely saw an outsized benefit related to returns processing it is quite meaningful of a bump that we saw in q2 and so you can really see how the implied guidance for q4 does step down, that's both with tariffs and makeshift into non-scrubware that seasonally happens in Q4, and not recognizing the same degree of benefit on returns that we saw in Q2.

Sorry, I should have said Q3. Oh, yeah, yeah, got it. Thanks.

Thank you for your question. Next question is from Nalana. Sean Kernan with TD Cowan. Nalana is now open.

Yeah, hey, thanks for taking the question.

Obviously, a lot of upside to quite 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 in G&A in fourth quarter and the expectations there, given you had a lot of momentum coming out of Q3 on the top line and the margin profile? Just curious, what's maybe changing in Q4?

Yeah, certainly. So we will have quite a step up quarter over quarter from Q3 into Q4 on tariff impact. so there will be quite a step up on the incremental amount of tariffs that Q4 has to carry and that will continue to step up as we go into 2026 as a higher portion of our inventory captures the full amount of tariffs. We also have seasonality to consider so we have a much higher proportion of our business in the fourth quarter that has non-scrubware that carries a lower margin rate. You'll kind of see that seasonal mix if you look back at the proportion of non-scrubware business in Q4. So planning similarly and that will have some drag on the quarter. And then also just to consider from year-over-year perspective as you're looking at Q4 that we did have a sizable duty drawback benefit in the fourth quarter last year that was one-time catch up, so we won't, you know, that'll have a headwind into your growth in Q4 as well. And then I think you're asking in terms of the overall P&L profile. I mean, you know, as we think about our selling costs, we've continued to see improvement there each quarter and happy with our efforts there, and that will continue into Q4. So a lot of really great work that's been done to negotiate with our vendors, bring on multi-carriers, and at the same time being able to provide even better service. And so that will continue into Q4. From a marketing perspective, the marketing rate will increase in Q4 from what you've seen each quarter in 2025, and that's a function of us starting our investments to support the Olympics, which happened in Q1 of 2026. And then, you know, as we go into G&A, we've been continuing to see the decline in our stock comp expense year-over-year, and that trend will continue into Q4 as well. I think those are the main puts and takes on how we think about the profile for Q4.

Guys, that's helpful. Thank you.

Thank you for your question. Our final question comes from the line of Angus Kelleher with Barclays.

Hi, this is Angus Kelleher on for Adrian Yee. Congrats on a solid quarter. I wanted to ask how you are balancing, no problem, how you're balancing the elevated inventory growth against the plan to pull back on promotions. You know, what safeguards are in place there to avoid margin pressure or excess stock? And I guess just more broadly, how do you feel about the composition of that inventory?

Yeah, thanks. So we've been intentionally investing in inventory to support demand and improve our core in stock levels. And we've really seen improvement in those in stock levels, which, you know, 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 time and so if you were to adjust for that hire 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 um so we're effectively getting products more efficiently um and we do need to adjust um and you know as we as we look at the the go forward um we would expect some moderation in unit growth um and that's really just as this in transit timing adjusts um and And 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, you know, 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 the future seasons we have made some good progress here including you know with our targeted promotional efforts and selective write-offs we were able to do and we do continue to make progress here and in the quarters ahead and we're working on improving you know greater discipline and efficiency to our buying process. And over time, we do expect that inventory balance to come down over 2026 despite the higher tariffs.

That's great. Thank you. And then if I could just squeeze one last one in about teams, how is the team's strategy evolving? How is the target customer shifted over time there? And then just if possible, any margin commentary you could share on the contribution of that business. Thank you.

Well, first off, Angus, I just want to thank you for we're not ending on the inventory question. So thank you for adding about something about teams cause I'm so excited to talk about our team's business. So, it's really, we've been really focused on investing in our team's business as we look to ensure an optimal foundation to set us up for the future. We've talked about our outbound strategy, bringing on new institutions that are looking to standardize and brand their teams, and we've made a lot of progress. The biggest kind of item that we're excited about is the, you know, upgraded technology. We mentioned it in the, you know, earlier part of this call, and so this is really designed for healthcare teams of all types and sizes. This platform is going to give organizations much more flexibility and functionality to purchase in the way that makes sense for their team. We are on our way to becoming the employee store for all different types of healthcare professionals. That's going to go well beyond traditional group ordering. And this is going to introduce new capabilities like stipends, like gifting, you know, different types of discounts based on your employee type. And so we're really excited about being able to roll out this upgraded Teams experience. It's going to feature our full product assortment. It's also going to be able to support international Teams customers, which hasn't been the case. And so we think we're going to be able to unlock meaningful growth in the future. And then you asked about the margin point.

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

Great. Great color. One hundred percent awesome color there. Thank you.

Angus, that was good.

There are no additional questions waiting at this time, so 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