10-K: FIGS, Inc. Reports 2024 Annual Results: Revenue Growth Slows Amidst Strategic Shifts

FIGS, Inc.'s 2024 annual report reveals modest revenue growth and strategic adjustments in response to evolving market dynamics and supply chain challenges.

Summary

• FIGS, Inc. reported a 1.8% increase in net revenues, reaching $555.6 million for the year ended December 31, 2024.
• The company's active customer base grew by 3.0%, totaling approximately 2.7 million as of December 31, 2024.
• Gross margin decreased by 1.5 percentage points to 67.6% due to product mix shift.
• Net income significantly decreased from $22.6 million to $2.7 million, resulting in a net income margin of 0.5%.
• Adjusted EBITDA decreased to $51.8 million, with an adjusted EBITDA margin of 9.3%.
• The company completed its transition to a new fulfillment center in Goodyear, Arizona, incurring $14.1 million in capital expenditures.
• FIGS is transitioning away from a key third-party supplier in Jordan due to labor condition concerns.
• The company's board authorized a share repurchase program, repurchasing 7,816,078 shares for $4.87 per share during the quarter ended December 31, 2024.
• As of December 31, 2024, the company had approximately $4.6 million available for future repurchases under the share repurchase program.
• On February 27, 2025, the board authorized an increase of $50.0 million in the share repurchase program, bringing the total authorization for repurchases under the program to up to $100.0 million of the company's outstanding Class A common stock.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While revenue increased, profitability declined significantly. Strategic shifts and legal challenges add uncertainty.

Positives

• The company's active customer base grew by 3.0%, totaling approximately 2.7 million as of December 31, 2024.
• FIGS is actively addressing ethical concerns by transitioning away from a supplier with questionable labor practices.
• The company's board authorized a share repurchase program, repurchasing 7,816,078 shares for $4.87 per share during the quarter ended December 31, 2024.

Negatives

• Gross margin decreased by 1.5 percentage points to 67.6% due to product mix shift.
• Net income significantly decreased from $22.6 million to $2.7 million, resulting in a net income margin of 0.5%.
• Adjusted EBITDA decreased to $51.8 million, with an adjusted EBITDA margin of 9.3%.

Risks

• The company's historical growth may not be sustainable or indicative of future results.
• Failure to manage the expansion of the business effectively could adversely affect financial condition and results of operations.
• The company may not be profitable in the future.
• The company's success depends on maintaining the value and reputation of its brand.
• Failure to attract new customers, retain existing customers, or increase sales to existing customers could harm the business.
• The market for healthcare apparel is highly competitive.
• Reliance on a limited number of third-party suppliers could cause problems in the supply chain.
• Cyberattacks and data breaches could expose customer information and harm the company's reputation.
• The dual-class structure of the common stock may limit or preclude the ability to influence corporate matters.
• The company is a controlled company and relies on exemptions from certain corporate governance requirements.
• Consumer confidence, shopping behavior, and spending have been and may continue to be negatively impacted by factors beyond our control, including supply chain disruptions, inflation, tariffs, high interest rates, fear of recession or entry into a recession, geopolitical tensions and military conflicts, and healthcare workforce-related stress, which may adversely affect our business, financial condition and results of operations.

Future Outlook

The company plans to continue investing in its brand and performance marketing to drive future growth and is working to strengthen its sourcing and manufacturing capabilities, which includes diversifying manufacturing operations geographically, as well as strategically refining its manufacturing base into high-quality manufacturing partners to improve product quality and consistency.

Industry Context

The healthcare apparel industry is positioned for long-term growth driven by key industry dynamics, including the non-discretionary nature of scrubwear and the long-term secular growth of the healthcare sector.

Comparison to Industry Standards

• The company competes against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms, and Superior Group of Companies.
• Additionally, the company competes with healthcare apparel specialty retailers, such as Scrubs & Beyond and Uniform Advantage, as well as digitally native brands such as Jaanuu and Mandala.
• The company also currently and in the future may continue to face competition from large, diversified apparel brands with name recognition and well-established sales, manufacturing and distribution infrastructure that choose to expand into the production and marketing of healthcare apparel, such as Fabletics.

Management Changes

Corporate Governance

Legal Proceedings

• A putative class action complaint was filed against the company and certain of its executive officers and directors in the United States District Court for the Central District of California alleging, among other things, violations of the Securities Act and Exchange Act for allegedly making false and misleading statements in its IPO in May 2021 and thereafter.
• An additional putative class action complaint was filed against the company, certain of its executive officers and directors, stockholders and the underwriters to its IPO, in the United States District Court for the Central District of California on December 8, 2022, making similar allegations to the previously referenced purported class action.
• On February 14, 2023, the court consolidated the two complaints and appointed lead plaintiffs.
• On April 10, 2023, the lead plaintiffs filed a consolidated amended complaint against the company, certain of its executive officers and directors, stockholders and the underwriters to its IPO, alleging, among other things, violations of the Securities Act and Exchange Act for allegedly making false and misleading statements between May 27, 2021 and February 28, 2023 with respect to its ability to predict customer demand and to manage its supply chain, inventory, air freight usage and costs (the Class Action Securities Litigation).
• On May 25, 2023, defendants filed a motion to dismiss the consolidated amended complaint.
• On January 17, 2024, the court granted the motion in its entirety as to all defendants, dismissed the case without prejudice, and granted plaintiffs leave to amend the complaint.
• On March 19, 2024, plaintiffs filed an amended complaint alleging violations of the Securities Act and Exchange Act similar to those alleged in the previously dismissed amended complaint.
• On May 3, 2024, defendants filed a motion to dismiss the amended complaint.
• On January 10, 2025, the court granted the motion in its entirety as to FIGS and the executive officer and director defendants, dismissed certain claims with prejudice and granted plaintiffs leave to amend the complaint further as to the remaining claims.
• Thereafter, plaintiffs declined to file an amended complaint and the court entered judgment against the plaintiffs on February 13, 2025.
• Plaintiffs have filed a notice of appeal from the dismissal with the United States Court of Appeals for the Ninth Circuit.
• On June 2, 2023, a putative stockholder, Paige McMurtrie, filed a derivative lawsuit against the company and certain of its current and former executive officers, directors and stockholders in the United States District Court for the Central District of California.
• The derivative complaint alleged factual allegations largely tracking allegations made in the Class Action Securities Litigation and sought, among other things, damages and restitution to be paid to the Company by the individual defendants, governance changes and attorneys fees and costs.
• On June 8, 2023, the plaintiff voluntarily dismissed that action brought in the Central District of California and re-filed it in the United States District Court for the District of Delaware (the McMurtrie Action).
• On July 11, 2023, another putative stockholder, Andrew Wubben, filed a derivative lawsuit asserting claims and factual allegations that were materially equivalent to the McMurtrie Action (the Wubben Action).
• On July 31, 2023, the parties to the McMurtrie Action and Wubben Action filed a stipulation to consolidate those actions and any future actions that may be filed based on the same claims and factual allegations (collectively, the Consolidated Federal Court Derivative Action).
• On September 25, 2023, the parties to the Consolidated Federal Court Derivative Action filed a stipulation voluntarily staying the Consolidated Federal Court Derivative Action until (1) the dismissal of the Class Action Securities Litigation, with prejudice, and exhaustion of all related appeals; or (2) the denial of any motion to dismiss the Class Action Securities Litigation in whole or in part; or (3) any of the parties to the Consolidated Federal Court Derivative Action provides 30-day notice that they no longer consent to the voluntary stay of the Consolidated Federal Court Derivative Action.
• On September 20, 2023, another putative stockholder, Osayi Lawani, filed a derivative lawsuit in the Central District of California asserting claims and factual allegations that were materially equivalent to the Consolidated Federal Court Derivative Action (the Lawani Action).
• The Lawani Action was then dismissed, re-filed in the United States District Court for the District of Delaware, and consolidated into the Consolidated Federal Court Derivative Action.
• On January 5, 2024, a putative stockholder, Lloyd Kimmen, filed a derivative lawsuit against the company and certain of its current and former executive officers, directors, and stockholders in the Delaware Court of Chancery (the Kimmen Action).
• On January 12, 2024, another putative stockholder, Cameron Carter, filed a derivative lawsuit that is materially equivalent to the Kimmen Action (the Carter Action).
• The Kimmen Action and the Carter Action allege factual allegations largely tracking allegations made in the Class Action Securities Litigation and the Consolidated Federal Court Derivative Action, except that the Kimmen Action and the Carter Action reference non-public documents that the Company previously produced to each of those shareholders pursuant to books and records requests made under Delaware General Corporation Law section 220.
• The parties to the Kimmen Action and Carter Action have stipulated, and the court has entered an order, to consolidate those actions and any future actions that may be filed based on the same claims and factual allegations (collectively, the Consolidated Delaware Court Derivative Action) and to voluntarily stay the Consolidated Delaware Court Derivative Action on terms similar to the stay entered in the Consolidated Federal Court Derivative Action.

Related Party Transactions

• In 2022, the company's Executive Chair and Chief Executive Officer paid the company, at their election, an aggregate amount of $0.4 million for certain of the company's professional fees in connection with the Follow-on Offering in which they participated as selling stockholders.
• In November 2024, the company purchased 27,454,727 shares of OOG's Series A-1 Preferred Stock for an aggregate price of $25.0 million in cash, representing a minority interest in OOG; Heather Hasson, Executive Chair of the Board, is founder and Chief Executive Officer of OOG.
• In November 2024, the company entered into a Purchase Order Agreement with Baron Capital Management, Inc. (BCM), a subsidiary of Baron Capital Group, Inc. (BCG), pursuant to which BCM purchased from the company certain FIGS products for an aggregate purchase price of $1.0 million; BCG is a beneficial owner of greater than 5% of the company's outstanding Class A common stock.
• In January 2025, the company entered into a binding term sheet with BCM and BAMCO, Inc., a subsidiary of BCG (BAMCO and, together with BCM, Baron), pursuant to which the company and Baron memorialized certain terms to be set forth in a stockholders agreement, relating to the purchase, transfer, registration and voting rights of certain of the company's securities owned by Baron and its affiliates; Baron and its affiliates are beneficial owners of greater than 5% of the company's outstanding Class A common stock.

Stakeholder Impact

• Shareholders may experience fluctuations in stock price due to market volatility and company performance.
• Employees may be affected by changes in compensation, benefits, and job security.
• Customers may experience changes in product quality, availability, and pricing.
• Suppliers may be affected by changes in sourcing and manufacturing strategies.
• Creditors may be affected by changes in the company's financial condition and ability to repay debt.

Next Steps

• The company plans to open additional Community Hubs in the future.
• The company is transitioning away from a key third-party supplier in Jordan due to labor condition concerns.
• The company is continuously working to strengthen its sourcing and manufacturing capabilities, which includes diversifying manufacturing operations geographically, as well as strategically refining its manufacturing base into high-quality manufacturing partners to improve product quality and consistency.

Key Dates

Keywords

FIGS, healthcare apparel, scrubs, financial results, revenue, EBITDA, customer growth, supply chain, risk factors, stock repurchase