FIGS, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, thank you for joining us, and welcome to FIGS' First Quarter Fiscal 2026 Earnings Conference Call. I will now hand the conference over to Tom Shaw, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us to discuss FIGS' first quarter 2026 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 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. Now I would like to turn the call over to Trina.

Thanks, Tom. Good afternoon, everyone, and thank you for joining us today. FIGS is off to an incredible start to the year, sustaining last year's strong momentum with broad-based strength across all aspects of our business. Net revenues exceeded expectations, growing 28% year-over-year, driven by accelerating active customer growth. We surpassed 3 million active customers for the first time in our history, an important milestone that reflects the growing resonance of our brand within the healthcare community. Strength was apparent across categories, styles and color, supporting success across all selling occasions during the quarter, including our business as usual days, new product launches and promotional events. Importantly, this performance was driven by continued strength in our core U.S. e-commerce business even as our market expansion drivers of international community hubs and teams continue to scale. Taken together, we believe this is a strong indication that our efforts are not only working but are sustainable. Bottom line results were also strong, demonstrating the power and resilience of our model. During the quarter, we were able to absorb unplanned fuel surcharges, continue to opportunistically invest across the business and still exceed our adjusted EBITDA margin expectations by 170 basis points. As we step back and look at the broader picture, we see our business thriving at the intersection of 3 powerful dynamics. First, our brand is differentiated and continues to gain strength through expansive product solutions, even more impactful marketing and a deeper level of connection with the healthcare community. This is what brand leadership looks like, and we are continuing to raise the bar. Second, we have built a more durable foundation for growth through operational excellence. Throughout 2025, we demonstrated greater discipline and efficiency across the organization, supporting our ability to react to market conditions and deliver top and bottom line upside. And we continue to see the benefits of that work coming through clearly while also layering in new initiatives that are enabling early success in 2026. Third, we are leveraging structural industry tailwinds that reinforce our long-term opportunity. Healthcare remains one of the most essential and resilient sectors of our economy with strong long term demand, driven by population trends and workforce needs. While advancements like AI have the potential to improve many of the administrative burdens that healthcare professionals face, the industry remains inherently hands-on and human. That dynamic continues to support the replenishment-driven nature of our category and the long-term opportunity for FIGS. Together, these dynamics are reinforcing our leadership position and giving us confidence in both near-term momentum and long-term opportunity. Let me spend some time on our year-to-date efforts and what to expect in the quarters ahead. Starting with product, which remains one of the most important ways we create and sustain our competitive moat. Our strong performance starts with the incredible momentum in our core scrubwear category, and we are highly focused on extending our leadership position by developing impactful new franchises across silhouette, fabrication and overall design. For example, we continue to lead the adoption of differentiated pant silhouettes. These trends have resonated broadly within apparel, and we have translated them authentically into our category. Importantly, we are delivering thoughtful head-to-toe coordination as these looks evolve, providing more complete and versatile solutions for healthcare professionals. At the same time, we are driving broader use cases through our fabrication strategy. Our FORMx fabric continues to gain traction with the fabric mix nearly doubling year-over-year and supported by strong demand across our ongoing expansion of color options. We are also excited about the continued rollout of our highly durable FIBREx fabrication, which we plan to spotlight more meaningfully in the second half of the year. Beyond scrubwear, we saw our strongest non-scrubwear growth in the past 3 years. This reflects our ongoing focus on building a true layering system and expanding our presence across the full range of needs for healthcare professionals. From underscrubs to outerwear to lab coats, we are approaching each category with clear strategies designed to solve real-world problems and elevate the experience. Collectively, these efforts are expanding the role FIGS plays in the daily lives of healthcare professionals and extending our leadership position. These efforts are continuing in Q2 as we deliver a new wave of product excitement to the market. This starts with color, always a powerful driver for the brand, we are increasingly coordinated and intentional in how we approach it. Our spring color drop in April performed exceptionally well, and we are particularly excited to then bring back espresso, the color that our community has been clear they're dying for. This demonstrates continued operational excellence as we are improving our ability to read trends and react quickly. This includes evolved supplier partnerships and new inventory planning tools that allow us to act more predictably and efficiently based on real-time demand signals. Beyond color, we introduced new maternity styles for the first time in 3 years, supported by a campaign featuring expecting healthcare professionals from our community. And finally, we continue to create excitement through unique collaborations. Ahead of May 4 and building excitement ahead of the next movie in the franchise, we introduced our latest Star Wars collection, building on our tradition of partnering with iconic cultural brands that resonate within our community. Turning to brand. We are continuing to set new standards in storytelling, connection and impact. Following our efforts at the Winter Olympics, we are excited to celebrate International Women's Month and debut our new Never Change campaign. This year, Long Anthem continues our important efforts to tell rich human stories that reflect the resilience, compassion and dedication of healthcare professionals. This platform builds on the success of last year's Where You Wear FIGS campaign, which set a high bar for authentic storytelling and community engagement. And we're seeing a powerful response here with the first chapter more than doubling last year's levels across impressions and engagement. We are also continuing to blend impactful digital storytelling with meaningful in-person moments across key events in the healthcare community. Match Day in March is one of the most important milestones for medical students, where they learn the residency placement, a defining step in their healthcare journey. We are proud to expand our on-campus presence this year, including celebrations at Howard University, the University of Houston and McGill University in Toronto. These impactful moments serve to create authentic long-term brand relationships at the very start of healthcare careers. As we speak, we are in the midst of Nurses Week, a hallmark moment for our community that sits at the heart of all we do. Nurses show up day after day the way they always have with an unmatched ability to connect with people and provide the assistance they need. It is only fitting to celebrate their impact through our next chapter of our Never Change campaign. In addition, we are supporting the occasion with a strong product lineup and a range of activations during the week ahead, including an unforgettable branded experience in Chicago and our first Drinkware collaboration with Owala. Beyond storytelling and engagement, our brand is deeply rooted in advocacy and the impact we aspire to have on the healthcare community. This is not a separate initiative. It's embedded in everything we do. Our close connection with healthcare professionals gives us unique insight into the challenges they face, and we are committed to using our platform to drive meaningful change. We recently announced the Austin Humans Foundation, the first nonprofit dedicated to directly supporting healthcare professionals across the challenges that shape their careers. This initiative allows us to scale our efforts, accept outside contributions and provide grants directly to healthcare professionals who most need them. In Q1, we announced the Healthcare Human Act, the first federal bill developed from the ground up by FIGS. Only half of healthcare professionals feel fairly compensated, the lowest score of any industry, which perpetuates dangerous understaffing across the workforce. Our bill directly addresses this challenge by providing a federal tax credit of up to $6,000 per year to help address financial strain across the healthcare workforce. We were also encouraged to see the reauthorization of the Dr. Lorna Breen Act in Q1, an effort we helped drive over the last few years to strengthen mental health and well-being support for healthcare professionals. These are positive steps, but we know there's much more work to be done. In a few weeks, we are organizing our largest effort ever on Capitol Hill. As part of our new long-term partnership with Noah Wyle, we are excited to have him once again join us in D.C. to help move the needle on the policies that are most needed to transform the experience of being a healthcare professional. Noah has devoted his extraordinary career to shaping the real stories of healthcare professionals that makes them feel seen, and we could not be more excited to keep partnering with him in the years ahead. This is how we show up for our community, not just through product and storytelling, but through action that has real impact on the lives of healthcare professionals. Turning to our market expansion. We continue to see strong momentum and significant opportunity. In our international markets, strong execution and demand supporting double-digit growth across every region and drove overall international net revenue up 50% year-over-year. Our Go Deep efforts continue to generate strong results in key markets like France and Germany, where localized storytelling and targeted investments are resonating with healthcare professionals. At the same time, our Go Broad strategy remains a highly efficient way to expand our global footprint. In March, we opened 15 new markets across Europe, followed by an additional 12 markets in Asia Pacific in April. While these markets are small financially in the near term, they represent an important long-term opportunity to bring FIGS to more healthcare professionals around the world. As a result of these efforts, we are now present in 85 international markets, a significant increase from just 32 markets at the end of 2024. Community Hubs also continue to exceed our expectations and play an important role in our ecosystem. All 5 locations are performing well with our 2 comp stores in L.A. and Philly up significantly. In the near term, our focus is on optimizing our existing fleet, particularly the 3 locations that opened at the end of last year. This includes refining our product assortment, going deeper in core styles and sizes and enhancing the in-store experience. These efforts reinforce our belief that a physical presence serves as a powerful complement to our digital-first model. At the same time, we are investing in the talent and processes needed to support our next phase of growth. We remain on track to open 4 new community hubs in the back half of the year, doubling down on all the early wins across the channel while also applying key lessons to optimally serve the needs of our customers. We see a clear opportunity to increase our pace of expansion in the years ahead and are excited to continue scaling this channel. Finally, turning to Teams. We continue to make important progress in building this business for the long run. Our focus has been on strengthening relationships with existing accounts while also building a pipeline of higher impact opportunities. And we saw encouraging traction on both fronts during Q1. Building deeper relationships means we are evolving beyond just the transaction and taking a more proactive and collaborative approach to servicing needs. Feedback has been positive with these efforts, which we believe will be a key to driving strong long-term partnerships. At the same time, our pipeline of new accounts is building with strong interest across a wide range of institutions. We also took an important step forward with the launch of our Team store in March. Integrated into our e-commerce platform, this solution provides a more seamless and flexible ordering experience, helping to reduce friction for our customers. This is an important milestone, but just the beginning. We plan to continue enhancing the platform throughout the year with more robust features that will unlock a broader range of solutions and better serve the diverse needs of healthcare organizations. We are driving solid overall Teams growth today, but more importantly, we are positioning ourselves to unlock a significantly larger opportunity over time. In closing, we are incredibly encouraged by how we started the year. We are executing at a high level. Our brand continues to strengthen and the structural dynamics of our industry remain highly favorable. Our focus in serving the healthcare community is resolute, and we are thoughtfully investing across the organization to extend our efforts, build even more impact and continue to define and lead the category. This is driving our increased confidence in our performance this year, and we will be instrumental in supporting top and bottom line momentum over time. With that, I'll turn it over to Sarah to walk through our financial results and outlook.

Thanks, Trina. Our better-than-planned first quarter results continued the powerful narrative coming out of 2025, where we strengthened the foundation of our business and advanced our work to scale our strategic pillars across product innovation, community engagement and market expansion. We believe these efforts are sustainable, unlocking growth opportunities and profitability over time, and we are excited to see our ongoing execution across these measures to start the year. Starting with the details of our Q1 performance. Net revenues increased 28% year-over-year to $159.9 million and outpaced our outlook, calling for growth in the low 20% range. Similar to last quarter, our performance was broad-based across categories, colors, geographies and channels. We were also pleased with the continued strength we are seeing in cross-selling occasions, including business as usual days and promotional events, both of which contributed upside to our plan during the period. We believe these are great indicators of the underlying strength in our business right now. As Trina highlighted, active customer growth accelerated to 12% year-over-year, surpassing 3 million total for the first time. This was supported by the ongoing strength we are seeing in both acquiring new customers and bringing customers back to the brand. Average order value increased 4% to $124, primarily driven by higher average unit retail due to pricing actions early in Q1 and favorable product mix. Notably, we saw less price elasticity than planned, which we believe underscores the ongoing value and relevance of our assortment. In addition to strong AOV, we think it is also important to note strong purchase frequency as customers are coming back and transacting more often. Growth across customers, order per customer frequency and AOV are a powerful combination and support gains in our trailing 12-month measure for net revenues per active customer. This measure strengthened again during the period, posting 6% growth to $220, which is the highest level recorded since Q4 2022. By category, scrubwear grew 27%, representing 79% of net revenues for the period. The theme of balanced growth was prevalent across the categories with success across both core and limited edition styles and colors. Growth was also supported by strategic inventory investments as we have sharpened our buys to ensure deeper positioning in core styles and to drive higher in-stocks. Wider leg pant options continue to be a great story, and we are driving depth across core and new options. FORMx has steadily gained traction as a great low-impact fabric solution and expanded color options sold through quickly at the beginning of the quarter. And our durable FIBREx fabrication debuted as part of the Winter Olympics collection, expanding our range of solutions for healthcare professionals. Non-scrubwear increased 31%, representing 21% of net revenues and posting the strongest growth in 3 years. Underscrubs and outerwear continue to drive strong growth as customers increasingly look to build head-to-toe wardrobes. We're also excited with how healthcare professionals are responding to our expanded range of accessories, including limited edition styles for events like Lunar New Year and the Olympics as well as expanded collections in bags and loungewear. We are excited to increase our focus and coordination across all these areas as we move forward. By geography, U.S. net revenues increased 24% to $131.6 million, while international net revenues increased 50% to $28.3 million. In the U.S., we are driving strong traffic and conversion to our business as we deliver a combination of great products and highly impactful brand moments. We are also sharpening how and where we deliver these stories to better engage healthcare professionals and drive marketing efficiency. At the same time, we are planning more functionality and resources to our digital platform to reduce friction and drive confidence in buying decisions. International growth was equally strong across both new and returning customers, underscoring our success in driving awareness, localizing the brand and scaling the opportunity. Notably, the overall growth contribution from our most recent go broad market expansion was minimal for the period, highlighting the strong performance across our more established markets. Considering geopolitical factors, growth rebounded strongly in Canada following last year's sentiment-driven softness, though did see sequentially slower yet still strong growth in the Middle East given the ongoing conflicts in the region. Gross margin for Q1 expanded modestly, up 10 basis points to 67.7% and in line with our outlook. We experienced sequentially higher tariff pressure during the period as expected as well as less favorable product mix. These headwinds were offset by positive impacts from pricing and our ongoing efficiency efforts. Our selling expense for Q1 was $36.4 million, representing 22.8% of net revenues compared to 26.2% last year. We continue to make significant progress optimizing our fulfillment center since the Q3 2024 opening and Q1 results demonstrate both meaningful fixed and variable cost leverage. Additionally, our outbound carrier diversification strategy continued to yield year-over-year savings despite recent parcel surcharges. Marketing expense for Q1 was $29.5 million, representing 18.4% of net revenues, up from 14.5% last year. As planned, the higher marketing rate largely reflects costs associated with our Winter Olympics campaign. Additionally, we opportunistically invested in several incremental areas, including the establishment of a formal partnership with Noah Wyle. Partially offsetting these investments and driving upside to plan, we experienced greater net revenue leverage and digital tax efficiencies. G&A for Q1 was $37.9 million, representing 23.7% of net revenues compared to 27.1% last year. The lower G&A rate was primarily due to net revenue leverage and lower stock-based compensation expense. Relative to plan, we did incur accelerated depreciation related to the earlier-than-planned timing of our headquarter move as we consolidate our location within our existing property. In total, our operating margin for Q1 was 2.8% compared to a loss of 0.2% last year, while our adjusted EBITDA for the period was 8.7% compared to 7.3% last year. Net income for the quarter totaled $6.3 million or diluted EPS of $0.03 compared to a net loss of $100,000 last year or breakeven diluted EPS. On our balance sheet, we finished the quarter with net cash, cash equivalents and short-term investments of $277 million. Inventory increased 6% year-over-year to $139.4 million. Improved supply and demand processes and discipline along with top line upside continues to support overall inventory efficiency even as we continue our focus on strategic buys across core goods. We remain on track with our target of reducing inventory days to approximately 200 by year-end. On the capital allocation side, share repurchases during the quarter under our ongoing repurchase program totaled approximately $8.8 million at a weighted average price of $15.38 per share, with approximately $43 million available for future repurchases under the program. Capital expenditures for the quarter were $2.4 million, primarily related to software capitalization and leasehold improvements with larger community hub-related outlays planned later in the year. Now turning to our outlook. Our outperformance in Q1 and the overall momentum across the business are driving greater confidence in our top and bottom line outlook. Importantly, this underscores the strength of our model as we are able to leverage improving demand to absorb unplanned costs, continue investing and expand profitability. Certain factors like tariffs and the extent of oil-related pressures require a flexible planning framework, but we believe we have appropriately factored in these dynamics with our increased guidance. Our full year 2026 net revenues are now expected to grow 14% to 16%, ahead of our prior outlook of 10% to 12% growth. This includes both our Q1 outperformance and greater confidence for the balance of the year, even as we embed prudent caution given some of the pressures and uncertainties consumers are facing. Our confidence is supported by the strong fundamentals of the healthcare industry as well as the trends we are seeing with active customer growth, the breadth of demand and growing brand engagement. For the second quarter, we are planning for net revenue growth to be up in the low 20% range year-over-year. This is a similar setup as we outlined last quarter, where quarter-to-date trends are strong, but we still have an important stretch ahead. For Q2, this includes this week's start to Nurses Week, a significant period for our brand and one where we are taking a more measured promotional approach relative to last year. Looking at the second half of the year, we would note that comparisons build each quarter, so we are still focused on driving growth against last year's blockbuster Q4. On to gross margin, where we continue to expect a modest full year improvement from the 66.5% level achieved in fiscal 2025. Tariffs remain a dynamic variable to forecast. Our prior outlook assumed 15% global tariffs for the balance of the year following the Supreme Court's ruling in February. However, since we made this assumption, only the Section 122 tariff of 10% has been in effect. Our updated outlook assumes this 10% rate remains in effect through the July 24 deadline while also continuing to reflect our original 15% rate assumption thereafter for the balance of the year. This results in slightly less tariff headwinds than we originally planned for the year. We are also factoring in new gross margin headwinds from higher inbound freight given the surge in oil prices as well as the tariff-related pause in our duty drawback program. These new pressures largely offset the more favorable tariff outlook and keep our gross margin outlook unchanged. Separately, we have taken the appropriate actions regarding refunds of what was paid under the IEEPA tariff, which equates to approximately $20 million. However, with our updated outlook, we have not embedded any of this benefit until we gain better clarity on how and when these refunds will be processed. Looking at the quarterly gross margin cadence, we expect Q2 to show a modest year-over-year decline from last year's 67% rate. This largely reflects the growing sequential impact of tariffs with the impact of average costing more than offsetting slightly lower rate assumptions. Given the comparisons in the second half of the year, we would expect a more meaningful year-over-year decline in Q3, followed by a large year-over-year improvement in Q4, ultimately yielding more consistent gross margin levels throughout the year. Shifting over to SG&A. We expect better net revenue leverage will be partially offset by several factors. In selling expenses, we continue to expect the benefit of efficiencies through our fulfillment center as we diversify our outbound carrier network. However, similar to inbound freight pressure, our outbound freight expenses are being negatively impacted by fuel costs. In marketing, while we expect leverage following the outsized Q1 Olympics investment, we have made strategic investments that were incremental to plan. And in G&A, our estimate for stock-based compensation has increased by nearly $2 million, primarily due to stock price appreciation. Again, this shows the strength of our financial model and how a highly leverageable structure can support both higher expenses and solid margin upside. Overall, we have increased our full year operating margin outlook from between 7.6% and 7.9% to an updated range of between 7.8% and 8%. We've also increased our full year adjusted EBITDA margin outlook from between 12.7% and 12.9% to between 13% and 13.2%. This includes an expected Q2 adjusted EBITDA margin of approximately 13.5%, up from the 12.9% in the prior year period. Below the operating line, we now expect the effective tax rate to be approximately 20%, down from our original 25% outlook and compared to 27.4% last year. The lower expected rate primarily reflects the excess tax benefit related to the magnitude of our recent stock price appreciation relative to incentive compensation grant prices. Before we open the call for Q&A, I would like to underscore our strong start to the year. We are well positioned to deliver against our updated outlook, leveraging top line momentum to support our growth initiatives while navigating a dynamic external environment. We remain focused on executing against our strategic pillars and are increasingly confident in our road map across product innovation, community engagement and market expansion in the quarters ahead. We are now happy to take your questions. Operator?

Your first question comes from the line of Brian Nagel with Oppenheimer.

Nice quarter. Congratulations. My first question is, we obviously see the results, but looking at the top-line momentum and how your consumers are behaving, was there anything that shifted from the fourth quarter into the first quarter and into the second quarter so far? Are any underlying dynamics changing here?

I think what you're seeing, Brian, is just an acceleration, a continued acceleration. We are really executing at the highest level. We're pairing creativity, excitement and innovation with operational excellence. And to your point, we're seeing that on both the top line and the bottom line. Q1, as you know, was up 28% and EBITDA margin was 170 basis points better than the guide and 140 basis points better than last year. And why is that? I think it's really three things. The first is our product. We're continuing to deliver the best product to meet every need of our healthcare professionals, head to toe across fabric, fit and function. On the marketing side, we're delivering campaigns that are continuously going viral. You saw that again yesterday with our Nurses Week campaign. I think real-time data shows over 7 million views across all platforms, incredibly engaging with nurses, but even broadly with all healthcare professionals. People, our community, are feeling seen, feeling heard, feeling understood, and that's what this brand has been all about since day one. And finally, our industry is incredibly attractive. We're selling replenishment-driven, nondiscretionary, seasonless products to healthcare professionals who are returning to us over and over again, and you're seeing our repeat frequency up considerably. So I do think the momentum you're seeing is incredibly sustainable. I was just looking at the healthcare industry stats. The industry is projected to be the largest industry sector with the largest absolute job growth and the fastest growth rate. So it's really hard to be the largest and the fastest growing at the same time. That is what's happening with healthcare jobs. And you're seeing the headlines that all the employment gains are pretty much coming from healthcare. So we have a lot to be excited about. We surpassed 3 million customers at the end of the quarter in scrubwear. And this is, like I said, broad-based: scrubwear up 27%, non-scrubwear up 31%, U.S. up 24%, international up 50%. And so we're going to keep executing, but really excited to see that it's the core business. It's the fundamental underlying nature of this business that's performing in addition to all of our growth levers, and that's all really exciting.

The follow-up question I have is just on the Teams business. I guess that was touched on in the context of that answer. As we think about the Teams business and the growth from here, do you envision a gradual grind higher in the size of the business, or do you foresee specific near-term steps where that business can experience a step change higher?

We're making considerable progress in terms of the Teams business, and we're really focusing on the technology and building the Teams store to serve every different type of healthcare institutions from universities to concierge clinics to hospitals and really understanding their needs and how we can show up for them and solve that with the technology and then also an incredible sales team. That's really not just engaging on that first sale, but also building that relationship over time. And so we've made considerable progress on that front. I think we're a bit away from that, and that's another growth lever to come. The business is growing. We're doing great, but much, much more to come as it relates to Teams.

Your next question comes from the line of Rick Patel with Raymond James.

Congrats on the strong execution here. I was hoping you can unpack the increase in new customers in the U.S. So how much of the growth was driven by reactivating lapsed customers? And how many are completely new to the brand? And as you look ahead, where do you see the most opportunity?

Yes. Within our active customer base, we're surpassing 3 million active customers now, which is awesome, and we're seeing accelerated growth in that to 12%. When we look across that customer base, this is the second quarter of double-digit new customer acquisition growth, and that growth is coming from both the U.S. and international markets. We saw an accelerated growth rate among redirected customers, and we're also seeing improved performance in retention. So we're seeing growth and acceleration across all three of those areas, which continues to give us proof points that this growth is sustainable and very broad-based.

Regarding the price increase you took earlier this year, you touched on demand being fairly inelastic, which is nice to hear. Given costs have continued to creep up here with freight, do you see room to expand price increases to more SKUs than you started the year with? And then on the flip side, any thoughts on just the promotional cadence here in 2Q and the back half?

Great. So yes, we did take pricing in January on about 1/3 of our styles. We've continued to track elasticity, and we are seeing results that are more favorable than what we had assumed. I think that really speaks to our value proposition. And we've reflected how we're seeing that improvement in sales across our guide for the rest of the year, along with the momentum we're seeing in all other factors of our business. I think pricing is something that we took as this onetime, and we will continue to evaluate it from a point of view on what is the value proposition of that product and what is the appropriate pricing for it. But I think at this time, that was one big move that we made and nothing of the same extent in the near future.

Your next question comes from the line of Adrienne Yih with Barclays.

My first question is: can you discuss any potential impact you're seeing from sourcing primarily in Jordan? And as a related question, with oil becoming an issue for your Southeast contract manufacturers, are you seeing work in process or current invoices that reflect those costs being passed on to you? I understand you don't use cotton—most of your products are oil-based. Finally, regarding the marketing you did, which was clearly top of funnel, can you discuss its effectiveness on brand awareness and customer acquisition? How should we think about steady-state customer acquisition costs as that marketing winds down?

So as you know, we have great partners in both Jordan and Vietnam. As we've disclosed, our production was pretty evenly split between these two countries last year, driving the vast majority of our overall global supply. We're now a bit more weighted toward Vietnam with only a bit more than one-third of our production coming from Jordan. As tariffs and other geopolitical events have shocked the macro supply chain system, we've managed very well. We've navigated this with limited operational impact within our supply chain, and I'm proud to say that we've seen no meaningful disruption to date in terms of our production, our timing, or our cadence of launches. To the extent there are short-term disruptions, we are well positioned to leverage our dual sourcing capabilities to manage them. In terms of raw materials, we've locked in our costing through the end of the year, so you are not going to see any pass-through from an oil perspective in terms of materials. Sarah, in her prepared remarks, talked about the freight impact on that. In terms of brand awareness and customer acquisition cost, the best brands in the world are able to continuously see CAC gains because of word-of-mouth dynamics, and we've talked about the word-of-mouth dynamics in our business. Why can we invest so much in our brand and create these game-changing viral campaigns that people love and grow affinity toward our brand? It is because we continuously get CAC gains in markets where we are more mature. We take those gains as we continue to scale, invest in new markets, and invest in top of funnel. We are continuously seeing that dynamic, which is a huge leading indicator not just for the next one to three quarters but for the next ten years. Our search traffic, social engagement, and impressions are up double and triple digits across the board, which gives us confidence that our marketing engine is working and that we will continue to double down on it.

Great. Sarah, a follow-up for you. So just a little clarification. The order value was up nicely, yet the product mix shift actually acted as the gross margin headwind. So can you just help us marry kind of those 2 things? Was the AOV largely from price increases and was it on core scrub? So kind of trying to bridge those 2 items.

Sure, yes. So our AOV was up 4%. We did see the majority of that coming from AUR, which was driven by the price increase. It's also coming from mix shift into some of our higher price point items that consists of some of our wider leg pant options, our FORMx, which has steadily gained traction as well as FIBREx, those also have a bit of drag on margins. So as we shift more into those items, that does have an impact on margin. And so that's how those 2 pieces connect together.

Your next question comes from the line of Ashley Owens with KeyBanc Capital Markets.

Congrats on the 3 million. So maybe on the 2Q cadence, you've called out colors several times that being important for you, Espresso came back but you're also taking that more measured promotional approach for Nurses Week. Just trying to see how we should be thinking about the puts and takes in that low 20s 2Q framework. Is Nurses Week still that potential source of upside for you? Or is the more measured approach a headwind versus last year?

Yes. I would say that the trends that we've seen in Q1 are carrying through into Q2. And at the time of this recording, we're on Day 2 of Nurses Week. We are taking a bit of a more measured approach in terms of our offering, but it is still a very large promo for us, and we're excited and pleased with what we've seen for the 2 days to date. And so we know that that is a big event. It was ahead of us at the time that we are setting our guidance, and we think that the guide is a reflection of where we're at while also keeping in mind that as well as our promo that happens in June is still ahead of us. And also being aware of the Middle East impact and the effect on consumers. So pleased with our trends to date and pleased that we're able to guide in that low 20% range for the quarter.

The last thing I'll just say on promotions. We continue to really be mindful of bringing down our promotional rate. If you look across the consumer landscape, we have one of the lowest promotional rates across the industry, and we continue to look to bring that down and we look to bring that down year-over-year for this year versus last. So it's all really exciting to be able to be performing the way we are with the promotional rate that we have.

Just two quick follow-ups. First, on non-scrubwear and the rebound you saw there: can you quantify how much of that 31% growth was driven by Olympics-related product that will roll off? And then on international, I know there has been a pretty broad rollout into the first couple of months of this year. I understand the near-term growth contribution will be minimal, but can you provide any context on a typical revenue ramp for a go-broad market in its first year, or how long you expect until these new markets become material to results?

Great. So for on non-scrubwear, so in the quarter, we did have the launch of our Olympics product, which featured our FIBREx. And from a product perspective, that was a small assortment and really happy with how it performed, but it was very small as intended and lived for a short time over the duration of the event. So it's not driving any impact really that's meaningful for non-scrubwear. The 31% is a continuation of our efforts to expand within underscrubs, expand within our outerwear and continue to drive overall outfitting for our HCPs. So we do expect continued growth within non-scrubwear. Then to your question on international, yes, we've been really pleased with our go broad and go deep strategy. The 50% growth in Q1 after delivering 55% growth in Q4 is really great, and we're continuing to see that really the majority of that growth is being driven by our existing markets. So within Q1, we saw good strength and growth continuing to come from Mexico. We're now in our fourth year in Mexico. We saw really strong growth in Canada. There was some softness there last year. So great to see the double-digit growth in Canada and then continuing to see great growth in the EU driven by France and Germany. And so while our go-broad efforts have allowed us to open many new locations quite quickly, these are very small in the interim here, and we're really setting those up to continue to gain momentum and have a bigger impact probably in 2027 and beyond.

Your next question comes from the line of Matt Koranda with ROTH Capital Partners.

It's Joseph on for Matt. I wanted to ask about store expansion plans. In your prepared remarks you mentioned about four stores opening, or rather four community hubs, in the back half of '26. How do your recent openings inform your expansion plans over the next one to two years and, more immediately, in the back half of this year? Any thoughts or anything we should be aware of as you ramp up more community hubs?

Yes. Thank you so much for the question. I am just so excited about community hubs, and I'm so excited about the 4 that we're going to be opening later this year. As you know, it's an incredible opportunity to be with our community, right? Where they are, where they work, where they live, they come in, they feel and touch and experience our product. They learn about our fabrications, they figure out their fit, they talk to our associates and are educated about the brand. Still about 40% of people walking in the door are new to the brand. So it's a really incredible way to bring new healthcare professionals into the fold. It's also a place where our healthcare professionals are learning about our layering system and learning and really deepening their love for us and our love for them, and that relationship is so important. So what are some of the learnings? I think we need bigger stores. I said last quarter, champagne problems, still champagne problems. If you have a 45-minute wait for a fitting room, that's not ideal. So we need more fitting rooms. We need larger spaces. We're looking at 2,500 to 3,000-ish square feet. We're optimizing the flow. We're optimizing the set wall. We're thinking through the branding elements and really making it the best experience for our community. And so a lot of learnings from Century City, Brittain House and our 3 latest openings from last year, Houston, Upper East Side, and the West Group in Chicago. Actually, we're doing a really cool event in Chicago for those of you who are there right now, the anti-Pizza Pizza party check it out. So just really, really great excitement, so many learnings that we're able to take and continue to build. And the economics from the 5 that we have are exceeding all expectations. So really, really exciting on all fronts.

Just as my follow-up, you guys mentioned healthcare being the biggest industry growing the fastest. Just anything you can unpack, I guess, as we're looking from March into April, any changes of behavior within that cohort? And then your thoughts on the resilience of this customer cohort that you guys are seeing in 1Q?

Yes. I mean healthcare professionals, they are incredibly resilient. They're the most resilient people on the planet. But I know you mentioned in a different way, but I just love to say that. They are the most amazing people. And what I think we're doing is something that we've always done, showing up for them with our product, with our marketing, right? How are we connecting with them in a deep way. And so there's still challenges in the industry. It's why we have such an incredible advocacy platform. It's why we built the foundation. It's why we're going to D.C. and having this incredible experience. For those of you who are in D.C. in May, oh my God, Todd is going to get so mad at me. I keep inviting people to our rally, but I won't talk about that yet. But that's exciting. It's called Awesome Humans on the Hill. We've done that for a number of years now. And so there's still challenges in the industry. There's staffing shortages. There's stress in the system. But how do we continue to show up for our community when this industry has structural advantages on a whole host of fronts. You need your uniform to go to work. You need to replenish your uniform. It's a nonseasonal industry. And so all of these dynamics are really fueling what we do in terms of our product and our marketing.

I can add some slices across the business in terms of how we look at the consumer. When we review our occupational data, we see strong year-over-year growth across all occupations, and we're particularly encouraged by growth among nurses and students. Looking across our spend quintiles, we see stronger growth in the higher spend quintiles, which account for the majority of spending; these are our most engaged customers and it shows our brand efforts to deepen brand love and engagement are working. Another relevant point is that across income cohorts we have not seen meaningful change across the different income levels, and we're actually seeing some slightly higher growth at lower incomes. I think this speaks to the ongoing value proposition and strength of our brand.

Your next question comes from the line of Bob Drbul with BTIG.

Congratulations. I have two questions. First, can you give us an update on the sizing initiative, specifically sizing and fit, and how that's going? Second, could you share any metrics on in-stocks and out-of-stocks and the progress you're making? Those would be helpful.

Yes. I mean, I think we've made incredible progress on our Fit initiative. We are on the other side of that, where when you come to FIGS across the layering system, if you are a particular size, that will fit you in a similar way across our product line, which is really exciting. I'm really excited to be on the other side of that. In terms of in-stock, our goal is to have all of our core product available. We have about 15 core styles that need to be in stock year-round so you can get your uniform at any time. And then, as you know, we drop new styles and new colors, and those drops are aimed to sell out in a relatively short period. You want the latest color and the latest style, and that's what drives you back. So we have two parts to our merchandising strategy: the core always in stock, and the drops meant to come and go. That's how we think about it. A great question, Bob.

Your next question comes from the line of Dana Telsey with Telsey Group.

Nice to see the progress. Trina, as you think about the product innovation and the newness that's driving demand, any call-outs of what we should be looking for, for the balance of the year? And is World Cup at all an activator for you? And then lastly, Sarah, on the puts and takes of the margins as we go through the balance of the year, anything on comparability that we should be watching for and the cadence?

In terms of innovation and newness, we're continuing to introduce new silhouettes and fabrications that are resonating. You saw that; you're seeing it with our FORMx fabric. We launched FIBREx as part of our Olympics drop and we're bringing it back. It's an incredibly durable yet lightweight fabrication that has resonated with the community. You're also seeing a variety of silhouettes and that we really understand their needs, not just from a fabrication standpoint, although that's super important, but also from a detailed understanding of where they are putting their tools, what types of pockets are needed, and the placement of those pockets. Understanding needs at that level enables us to bring true innovation to our community. Regarding the World Cup, that's something we are looking at. There's no product plan tied to it, but it's an exciting global moment and something we always look to align with important cultural moments. So you'll see something from us on that front.

For your question on margin, gross margin. So we expect full year gross margin to be up modestly year-over-year from the 66.5% level that we had in fiscal 2025 and many puts and takes. So we have the continued tariff pressure. We have also picked up added pressure on inbound freight due to rising fuel prices and also needed to take a pause in our duty drawback program. And then we have the impact of our pricing as well as cost mitigation and some of our operational efficiency efforts that helped to offset some of those pressures. So we did see Q1 up 10 basis points year-over-year. We've guided for Q2 to be down modestly year-over-year, and that's really due to the continued step-up of tariff pressure into the quarter. And then as we look at our other quarters, so for Q3 last year, the rate was quite high due to some favorability of our returns processing. And so we do expect a normalization of that. So we expect to see a decline in gross margin rate in Q3. And then recall, in Q4 last year, we had the onetime inventory write-off, and so we will be comping against that. So expect a larger year-over-year improvement in Q4, ultimately yielding more consistent gross margin levels throughout the year.

Our last question comes from the line of Nathan Feather with Morgan Stanley.

Congrats on the strong quarter. Two on my end. First, have you seen any difference in how consumers across income brackets are responding to kind of the increase in gas prices you've seen over the past few months? Second, on your fabrication strategy, encouraging to see the traction you've had here. I guess, as you think over the next 2, 3, 4 years, what's kind of the right number of fabrication? How much do you think about those as being incorporated into the core SKU count versus driven more for some of the kind of limited time exclusivity?

Great. So in terms of the impact on our consumer, I mean, at this point, we've continued to see continued strength across all prices of how we look at our consumer, really small, probably noticed a bit of a pullback in our APAC region. They are more sensitive and seeing larger impact from the increase in fuel prices, but that does not have a meaningful impact on our overall performance. So we remain really resilient, and that is in the near term. So we have really thought about what could be a longer-term impact, and that informs partially how our guide is positioned for the rest of the year, just knowing that, that can be a pressure on spending for the consumer into the back half of the year.

Yes. I think your question is around how we think about the future state of our assortment and fabric and what's core and what's limited edition. I think at the core of what we do, we're always innovating. And we have this incredible feedback loop with our community to understand what they want, when they want it. And so that informs how we create, how we create product for them. And it's a balance. It's a balance of the art and the science. We're reacting to trends a bit, but it's more; we're a uniform company, right? We're a function company, not a fashion company. And so we're able to really test and learn and understand them and deliver what they need and then build a strategy and assortment around that. That goes to fabrics, silhouettes, color, all aspects of what we do and then across the layering system. And so I do believe that we've never been better positioned, right? We're leading this industry by miles. And so it's ours to continue to execute on. It's ours to continue to show up for this community and really define what this industry can be in the future, and that's what we're going to do.

There are no further questions at this time. I will now turn the call back to Trina Spear for closing remarks.

Thank you all for joining us. We'll see you soon.

This concludes today's call. Thank you for attending. You may now disconnect.