10-Q: FIGS Q2 Profit Soars Amid Revenue Growth, Cash Flow Dips

FIGS, Inc. reported a significant increase in net income and adjusted EBITDA for the second quarter and first half of 2025, driven by higher revenues, despite a decline in cash flow from operations and gross margin pressure from tariffs and inventory reserves.

Summary

• Net revenues increased by 5.8% to $152.6 million for the three months ended June 30, 2025, and by 5.3% to $277.5 million for the six months ended June 30, 2025, compared to the prior year periods.
• Net income surged to $7.1 million for Q2 2025, up from $1.1 million in Q2 2024, and reached $7.0 million for the first half of 2025, compared to $2.5 million in the first half of 2024.
• Adjusted EBITDA rose to $19.7 million for Q2 2025 (12.9% margin) from $12.9 million in Q2 2024 (9.0% margin), and to $28.9 million for the first half of 2025 (10.4% margin) from $25.9 million in the first half of 2024 (9.8% margin).
• Gross margin decreased by 0.4 percentage points to 67.0% for Q2 2025 and by 0.8 percentage points to 67.3% for the first half of 2025, primarily due to higher inventory reserves and tariffs, partially offset by higher duty drawback and a lower return rate.
• Operating expenses decreased by 3.5% for Q2 2025 and 0.2% for the first half of 2025, primarily driven by lower selling, marketing, and general and administrative expenses as a percentage of net revenues.
• Active customers grew by 4.1% to approximately 2.7 million as of June 30, 2025, from 2.6 million a year prior.
• Average Order Value (AOV) increased to $117 for Q2 2025 from $113 in Q2 2024, and to $118 for the first half of 2025 from $115 in the first half of 2024.
• Net cash used in operating activities was $3.2 million for the six months ended June 30, 2025, a significant decrease from $28.2 million provided in the same period last year, mainly due to timing of payments against accrued expenses and higher inventory purchases.
• Free cash flow was negative $5.6 million for the six months ended June 30, 2025, down from positive $18.7 million in the prior year period.
• Cash and cash equivalents decreased to $50.8 million as of June 30, 2025, from $85.6 million as of December 31, 2024.

Sentiment

Score: 5

Explanation: While FIGS demonstrated strong growth in net income and adjusted EBITDA, indicating improved operational efficiency and profitability, the significant deterioration in cash flow from operations and free cash flow, coupled with declining cash reserves, presents a notable concern regarding liquidity. Gross margin pressure from tariffs and inventory reserves also weighs on the outlook. The ongoing legal proceedings and macroeconomic uncertainties add to the mixed sentiment, balancing the positive earnings performance with liquidity and external risks.

Positives

• Significant increase in net income and adjusted EBITDA for both the three and six months ended June 30, 2025, indicating improved profitability and operational efficiency.
• Growth in active customers by 4.1% to 2.7 million, demonstrating continued brand reach and customer acquisition.
• Increase in Average Order Value (AOV) to $117 for Q2 2025 and $118 for H1 2025, suggesting customers are purchasing more per order.
• Operating expenses decreased as a percentage of net revenues, driven by lower fulfillment, shipping, and more efficient digital marketing spend, indicating better cost management.
• Successful dismissal with prejudice of the putative securities class action lawsuit in January 2025, although an appeal is ongoing.

Negatives

• Gross margin decreased by 0.4 percentage points in Q2 2025 and 0.8 percentage points in H1 2025, primarily due to higher inventory reserves and tariffs.
• Net cash used in operating activities was $3.2 million for the six months ended June 30, 2025, a substantial decline from $28.2 million provided in the prior year, attributed to timing of payments and higher inventory purchases.
• Free cash flow turned negative, at $(5.6) million for the six months ended June 30, 2025, compared to positive $18.7 million in the same period last year.
• Cash and cash equivalents decreased by $34.8 million from December 31, 2024, to June 30, 2025.
• Other income, net, decreased due to lower interest income, reflecting the impact of lower interest rates.
• The company faces increased product costs due to new universal baseline tariffs of 10% on all U.S. imports, plus additional country-specific tariffs for Vietnam (20%) and Jordan (15%), where a significant portion of finished goods are produced.

Risks

• Historical growth may not be sustainable or indicative of future results, and failure to manage business expansion effectively could adversely affect financial condition.
• Profitability is not guaranteed in the future, as operating expenses are expected to increase with growth initiatives.
• Success depends on maintaining brand value and reputation, which can be harmed by negative publicity or failure to meet customer expectations.
• Inability to attract new customers, retain existing customers, or increase sales to them could harm growth prospects.
• Unsuccessful marketing efforts could adversely affect business and financial results.
• Dependence on a strong community of engaged customers and ambassadors, including through social media, poses risks if relationships are not maintained or negative publicity arises.
• Failure to successfully develop and introduce new, innovative, and updated products could impact sales and profitability.
• The healthcare apparel market is highly competitive, with established companies and new entrants, potentially leading to pricing pressures and reduced profit margins.
• Future success relies on retaining key employees and attracting highly skilled team members in competitive job markets.
• International expansion plans expose the company to new and significant risks, including cultural differences, regulatory environments, and increased costs.
• Shipping disruptions, including those from geopolitical conflicts (e.g., Middle East), global trade policy shifts, labor disputes, or natural disasters, can adversely affect supply chain and costs.
• Problems with the distribution center's operational infrastructure, including staffing or system failures, could harm ability to meet customer expectations and manage inventory.
• Inability to accurately forecast customer demand, manage inventory, and plan for future expenses could lead to inefficient inventory, write-offs, or shortages.
• Consumer confidence, shopping behavior, and spending may be negatively impacted by macroeconomic factors like inflation, high interest rates, recession fears, and healthcare workforce-related stress.
• Reliance on a limited number of third-party suppliers for raw materials and products could cause supply chain problems and additional risks.
• Global trade policy, including tariffs and other trade barriers, can increase product costs and impact demand.
• Inability to execute on B2B (TEAMS) or retail growth strategies could adversely affect business.
• Cyberattacks or disclosure of proprietary, confidential, or sensitive information could lead to liability, reputational damage, and reduced customer use of digital platforms.
• Quarterly results of operations may fluctuate and could fall below public guidance or analyst expectations, leading to stock price decline.
• The dual-class common stock structure, voting agreement, and stockholders agreement limit the ability of Class A common stockholders to influence corporate matters.
• Being a controlled company under NYSE rules allows exemptions from certain corporate governance requirements, reducing protections for stockholders.
• Stock price volatility and potential decline regardless of operating performance, including from sales by existing security holders.
• No intention to pay dividends for the foreseeable future, requiring stockholders to rely on stock price appreciation for gains.
• Delaware law and company charter/bylaws could make mergers, tender offers, or proxy contests more difficult.
• Choice of forum provision for certain litigation could limit stockholders' ability to obtain a favorable judicial forum.
• The share repurchase program may not be fully consummated or enhance long-term stockholder value, and could increase stock volatility or diminish cash reserves.
• Estimates of market opportunity and forecasts of market growth may be inaccurate.
• Natural disasters, public health crises, political crises, or other catastrophic events could adversely affect operations.
• Periodic disputes, claims, and litigation could result in unexpected expenses and unfavorable outcomes.
• Insurance may not provide adequate coverage against claims.
• Significant additional costs and management time are required as a public company for compliance.
• If estimates or judgments relating to critical accounting policies are incorrect, results could fall below expectations.
• Changes in GAAP may negatively impact reported financial results.
• Failure to maintain effective internal control over financial reporting could lead to loss of investor confidence.
• Additional capital may be required to support business growth, which might not be available or could dilute existing stockholders.
• Failure to effectively and efficiently address environmental, sustainability, social, and governance (ESG) matters could adversely impact the company.

Future Outlook

The company anticipates operating expenses to increase as it expands sales and marketing efforts, invests in new product development, hires additional personnel, and expands its operating infrastructure, including Community Hubs and TEAMS capabilities, and new geographies. Near-term net revenue growth is expected to be slower than in the past or may decline, with long-term growth potentially slowing due to reduced demand, increased competition, or inability to capitalize on opportunities. The company plans to open additional fulfillment facilities and expand its use of artificial intelligence. It continues to monitor and implement mitigation strategies for global trade policy changes, including tariffs, and is assessing the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) on its financial statements. Ms. Spear intends to voluntarily forego additional equity compensation in 2026 and potentially beyond.

Management Comments

• Our mission is to celebrate, empower and serve those who serve others.
• We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals.
• We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price.
• We have redefined what scrubs are—giving rise to our tag-line: why wear scrubs, when you can #wearFIGS?
• By elevating scrubs and creating premium products for healthcare professionals, we revolutionized the large and fragmented healthcare apparel market, branded a previously unbranded industry and de-commoditized a previously commoditized product. Most importantly, we built a community and lifestyle around a profession.
• We continuously work to strengthen our sourcing and manufacturing capabilities, which includes diversifying manufacturing operations geographically.
• We are implementing various mitigation strategies, including adjusting the countries from which we source our products and renegotiating terms with suppliers, but cannot be certain whether they will be effective.
• We believe that existing cash and cash equivalents, cash flows from operations and available borrowings under our 2021 Facility, if needed, will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months.

Industry Context

The healthcare apparel industry, unlike traditional apparel, is generally not seasonal. FIGS operates in a highly competitive market, competing with established wholesalers (e.g., Careismatic Brands, Barco Uniforms) and specialty retailers (e.g., Scrubs & Beyond, Uniform Advantage), as well as digitally native brands (e.g., Jaanuu, Mandala). There is also potential competition from large, diversified apparel brands expanding into healthcare apparel. The industry faces challenges from macroeconomic pressures, including inflation and geopolitical tensions, which can impact consumer spending. Reports of elevated fatigue and stress among healthcare workers may also influence customer purchasing behavior, although the demand for healthcare professionals continues to outpace supply.

Comparison to Industry Standards

• The filing does not provide specific comparable company financial metrics or project results to benchmark against industry standards. It lists competitors such as Careismatic Brands, Barco Uniforms, Landau Uniforms, Superior Group of Companies, Scrubs & Beyond, Uniform Advantage, Jaanuu, Mandala, and Fabletics, but does not offer a direct quantitative comparison of performance against these entities.

Management Changes

Corporate Governance

Legal Proceedings

• A putative securities class action lawsuit filed in November 2022 (consolidated February 2023) alleging violations of the Securities Act and Exchange Act for allegedly false and misleading statements regarding customer demand, supply chain, inventory, air freight usage, and costs. The court dismissed the case with prejudice in January 2025, and judgment was entered against the plaintiffs on February 13, 2025. Plaintiffs have filed a notice of appeal to the Ninth Circuit, and briefing is ongoing.
• Related derivative lawsuits (McMurtrie, Wubben, Lawani, Kimmen, Carter actions) asserting similar factual allegations are currently pending and have been consolidated and stayed, awaiting the outcome of the Class Action Securities Litigation appeal.

Related Party Transactions

• In November 2024, the company purchased 27,454,727 shares of OOG, Inc.'s Series A-1 Preferred Stock for $25.0 million, representing a minority interest. Heather Hasson, Executive Chair of FIGS, is the founder and CEO 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), for $1.0 million of FIGS products. BCG is a beneficial owner of greater than 5% of FIGS' outstanding Class A common stock.
• During the six months ended June 30, 2025, the company sold an additional $0.2 million of FIGS products to BCG.
• In March 2025, the company entered into a License Agreement with OOG, Inc., licensing approximately 2,200 square feet of unused office space for nominal consideration.

Stakeholder Impact

• Shareholders: Experience increased stock price volatility, potential future dilution from capital raises, and limited influence on corporate matters due to the dual-class stock structure. The share repurchase program may offer some price support, but no dividends are expected.
• Employees: Benefit from increased investment in people and potential for higher compensation in competitive job markets. Executive compensation changes, including option repricing and RSU grants for co-founders, are notable.
• Customers: Benefit from continued product innovation and potential expansion of retail presence. May experience shipping delays due to global supply chain issues and potential impacts on product costs from tariffs, though the company is implementing mitigation strategies.
• Suppliers/Manufacturers: Subject to the company's efforts to diversify manufacturing geographically and renegotiate terms in response to tariffs, potentially impacting their business relationships and costs.
• Creditors: The company maintains a $100.0 million revolving credit facility with Bank of America, N.A., with $95.1 million available, indicating a stable credit relationship, but negative cash flow from operations could be a point of monitoring.

Next Steps

• Continue to expand into additional international markets.
• Open additional retail stores (Community Hubs).
• Open additional fulfillment facilities.
• Expand the use of artificial intelligence in business operations.
• Assess the impact of the One Big Beautiful Bill Act (OBBBA) on condensed consolidated financial statements.
• Continue to implement mitigation strategies for global trade policy changes, including adjusting sourcing countries and renegotiating supplier terms.
• Monitor and respond to ongoing legal proceedings, including the appeal of the securities class action dismissal and the derivative lawsuits.

Key Dates

Recommendation

While FIGS demonstrated strong profitability improvements with significant increases in net income and adjusted EBITDA, indicating effective cost management and revenue growth, the substantial negative free cash flow and cash flow from operations for the six-month period are concerning. These liquidity issues, coupled with ongoing gross margin pressures from tariffs and inventory reserves, present a mixed financial picture. The company's strategic initiatives like international expansion and retail growth are positive long-term drivers, but they also introduce new risks and capital requirements. The ongoing legal proceedings and the dual-class share structure, which limits shareholder influence, add to the uncertainty. Given the strong operational performance but notable liquidity challenges and external headwinds, a 'hold' recommendation is appropriate, suggesting investors monitor the company's cash flow generation and its ability to mitigate macroeconomic and supply chain risks.

Keywords

Healthcare apparel, Scrubs, Medical uniforms, Direct-to-consumer, DTC, E-commerce, Apparel brand, Financial results, Quarterly report, SEC filing, FIGS, AWESOME HUMANS, TEAMS business, Retail expansion, Supply chain, Tariffs, Profitability, Cash flow, Stock repurchase, Corporate governance