10-Q: FIGS Q3 2025 Earnings: Revenue Up, Profitability Improves

FIGS, Inc. reported an 8.2% increase in net revenues and a significant improvement in net income for Q3 2025, driven by higher orders and average order value, despite ongoing tariff impacts.

Summary

• Net revenues increased by 8.2% to $151.7 million for the three months ended September 30, 2025, compared to $140.2 million in the prior year period.
• Net revenues increased by 6.3% to $429.2 million for the nine months ended September 30, 2025, compared to $403.7 million in the prior year period.
• Gross margin improved by 2.8 percentage points to 69.9% for the three months ended September 30, 2025, and by 0.5 percentage points to 68.2% for the nine months ended September 30, 2025.
• Net income for the three months ended September 30, 2025, was $8.7 million, a significant improvement from a net loss of $(1.7) million in the comparable prior year period.
• Net income for the nine months ended September 30, 2025, was $15.7 million, up from $0.8 million in the comparable prior year period.
• Adjusted EBITDA increased to $18.9 million for the three months ended September 30, 2025, from $4.8 million in the prior year, with an adjusted EBITDA margin of 12.4%.
• Adjusted EBITDA increased to $47.8 million for the nine months ended September 30, 2025, from $30.7 million in the prior year, with an adjusted EBITDA margin of 11.1%.
• Active customers grew by 4.0% to approximately 2.8 million at September 30, 2025, from 2.7 million at September 30, 2024.
• Net revenues per active customer increased to $209 at September 30, 2025, from $205 at September 30, 2024.
• Average Order Value (AOV) increased to $114 for the three months ended September 30, 2025, from $108 in the prior year, and to $117 for the nine months ended September 30, 2025, from $112 in the prior year.
• Cash flows from operating activities decreased significantly to $0.2 million for the nine months ended September 30, 2025, from $50.7 million in the prior year.
• Free cash flow decreased to $(5.1) million for the nine months ended September 30, 2025, from $37.1 million in the prior year.
• Tariffs negatively impacted gross margin by 120 basis points for the three months ended September 30, 2025.
• The revolving credit facility maturity date was extended from September 7, 2026, to November 3, 2030, and the annual commitment fee was reduced to 0.15% of the unused Revolving Facility.
• The share repurchase program authorization was increased by $50.0 million, bringing the total to $100.0 million, with approximately $52.0 million remaining available for future repurchases as of September 30, 2025.

Sentiment

Score: 7

Explanation: Strong revenue and profitability growth, coupled with strategic financial moves like credit facility extension and increased share repurchase, indicate positive operational momentum. However, significant declines in operating and free cash flow, along with ongoing tariff impacts and legal proceedings, present notable headwinds.

Positives

• Net revenues increased by 8.2% for the quarter and 6.3% for the nine months ended September 30, 2025, demonstrating continued top-line growth.
• Gross margin significantly improved to 69.9% in Q3 2025 from 67.1% in Q3 2024, driven by fewer discounts, improved return rates, lower inbound freight, and lower duty rates.
• The company returned to net income profitability in Q3 2025 with $8.7 million, compared to a net loss of $(1.7) million in Q3 2024.
• Adjusted EBITDA saw substantial growth, reaching $18.9 million in Q3 2025 (from $4.8 million in Q3 2024) and $47.8 million for the nine months (from $30.7 million in 2024), indicating enhanced operational efficiency.
• The active customer base expanded by 4.0% to 2.8 million, and net revenues per active customer increased to $209, reflecting strong customer engagement and retention.
• Average Order Value (AOV) increased to $114 in Q3 2025 and $117 for the nine months, suggesting a premium product perception and/or increased purchase size.
• The revolving credit facility maturity date was extended to November 3, 2030, providing long-term liquidity and financial flexibility.
• The share repurchase program authorization was increased to $100.0 million, with $52.0 million remaining, signaling management's confidence in the company's valuation and commitment to shareholder returns.

Negatives

• Cash flows from operating activities decreased significantly to $0.2 million for the nine months ended September 30, 2025, from $50.7 million in the prior year, primarily due to higher inventory purchases and timing of payments.
• Free cash flow turned negative, decreasing to $(5.1) million for the nine months ended September 30, 2025, from a positive $37.1 million in the prior year.
• Tariffs negatively impacted gross margin by 120 basis points in Q3 2025, and are estimated to have a future negative impact of 110 basis points for 2025 and 440 basis points for 2026.
• Other income, net, decreased for both the three and nine-month periods, primarily due to lower interest income driven by lower interest rates.
• Inventory, net, increased to $151.2 million at September 30, 2025, from $115.8 million at December 31, 2024, potentially indicating excess inventory levels or slower sales growth relative to inventory build-up.
• The company is involved in ongoing legal proceedings, including an appealed securities class action and pending derivative suits, which could result in significant costs and diversion of management resources.

Risks

• Historical growth may not be sustainable or indicative of future results, and failure to manage business expansion effectively could adversely affect financial condition.
• The company has not always been profitable and may not be profitable in the future, with operating expenses expected to increase.
• Success depends on the ability to maintain the value and reputation of the brand, which can be harmed by negative publicity or failure to meet customer expectations.
• Failure to attract new customers, retain existing customers, or increase sales to those customers could harm business and growth prospects.
• Unsuccessful marketing efforts, including reliance on social media and ambassadors, could adversely affect business and financial results.
• Inability to successfully develop and introduce new, innovative, and updated products may hinder sales and profitability.
• The market for healthcare apparel is highly competitive, potentially leading to pricing pressures and reduced profit margins.
• Future success depends on the continuing efforts of key employees and the ability to attract and retain highly skilled team members.
• Expansion into additional international markets exposes the company to new and significant risks, including cultural, regulatory, competitive, and logistical challenges.
• Changes in, or disruptions to, shipping arrangements (e.g., global conflicts, port-worker strikes, fuel prices) could adversely affect business, financial condition, and results of operations.
• Problems with the distribution center's operational infrastructure, including reliance on a sole fulfillment center in Goodyear, Arizona, 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 supply, increased costs, or inventory write-offs.
• Consumer confidence, shopping behavior, and spending may continue to be negatively impacted by macroeconomic factors such as supply chain disruptions, inflation, tariffs, high interest rates, recession fears, geopolitical tensions, and healthcare workforce-related stress.
• Reliance on a limited number of third-party suppliers for raw materials and product components could cause supply chain problems and additional risks.
• Global trade policy, including tariffs and other trade barriers, impacts the ability to source and distribute products profitably, with significant estimated future impacts on gross margin.
• Inability to execute on the B2B growth strategy (TEAMS channel) due to expenses, hiring challenges, or sales lead generation issues.
• Inability to execute on the retail growth strategy (opening new Community Hubs) due to challenges in locating suitable space, staffing, and operational management.
• Disclosure of proprietary, confidential, or sensitive information or personal data, or real or perceived cyberattacks, could expose the company to liability and damage its reputation.
• Quarterly results of operations have fluctuated and may continue to do so, potentially falling below public guidance or analyst expectations, leading to stock price decline.
• The dual-class structure of common stock, voting agreement, and stockholders agreement may limit shareholders' ability to influence corporate matters.
• As a controlled company under NYSE rules, the company may rely on exemptions from certain corporate governance requirements, reducing protections for stockholders.
• Stock price has been volatile and may continue to decline regardless of operating performance, potentially resulting in substantial losses for investors.
• Sales of a substantial amount of Class A common stock by existing security holders could cause the stock price to decline.
• The credit agreement contains restrictive covenants that may limit operating flexibility.
• A downturn in the economy may adversely affect the business, despite the non-discretionary nature of healthcare apparel.
• Risks associated with growing the business through acquisitions of, or investments in, new or complementary businesses, facilities, technologies, or products, or through strategic alliances.
• Key operating metrics are subject to inherent challenges in measurement, and inaccuracies could cause a loss of investor confidence.
• Potential losses from various types of fraud, including stolen credit card numbers, unauthorized purchases, and fraudulent websites.
• The business may be affected by seasonality, with a higher proportion of net revenues and expenses historically generated in the fourth quarter.
• System interruptions or other performance failures in IT infrastructure could damage business, reputation, and brand.
• Inability to provide a cost-effective shopping platform that can respond and adapt to rapid changes in technology.
• Customer engagement on mobile devices depends on effective operation with mobile operating systems, networks, and standards not controlled by the company.
• Failure or inability to protect or enforce intellectual property rights could diminish brand value and weaken competitive position.
• Fabrics and manufacturing technology may be imitated by competitors, potentially affecting business and financial results.
• The company may incur costs to defend against, face liability for, or be vulnerable to intellectual property infringement claims brought by others.
• Inability to acquire, use, or maintain marks and domain names for websites could substantially harm the business.
• Exposure to foreign currency exchange rate fluctuations could affect net revenues and results of operations.
• Failure to comply with trade, anti-corruption, and other regulations could lead to investigations, actions by government regulators, and negative publicity.
• Changes in tax laws, including the Inflation Reduction Act of 2022 and the One Big Beautiful Bill Act (OBBBA), may adversely impact future financial position and results of operations.
• The company could be required to collect additional sales taxes, increasing costs for customers and adversely affecting results of operations.
• Ability to use net operating loss carryforwards may be limited by Section 382 of the Internal Revenue Code or state tax laws.
• Incurrence of significant additional costs as a result of being a public company, diverting management time to compliance.
• If estimates or judgments relating to critical accounting policies are based on assumptions that change or prove to be incorrect, results of operations could fall below expectations.
• Reported financial results may be negatively impacted by changes in GAAP.
• Failure to maintain effective internal control over financial reporting could cause investors to lose confidence.
• Disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
• The company may require additional capital to support business growth, which might not be available or may be available only by diluting existing stockholders.
• Failure to effectively and efficiently address environmental, sustainability, social, and governance (ESG) matters could adversely impact the company.

Future Outlook

The company expects net revenues to grow more slowly than in the past or to decline in the near term. It anticipates continued increases in operating expenses due to investments in sales and marketing, new product development, personnel, operating infrastructure, Community Hubs footprint, TEAMS capabilities, and international expansion. Tariffs are estimated to negatively impact gross margin by approximately 110 basis points for 2025 and 440 basis points for 2026. The company plans to open additional fulfillment facilities in the future.

Management Comments

• Our mission is to celebrate, empower and serve those who serve others.
• 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?
• We built a community and lifestyle around a profession, becoming the industry’s category-defining healthcare apparel and lifestyle brand.
• We primarily design all of our products in-house, leverage third-party suppliers and manufacturers to produce our product components and finished products, and generally utilize shallow initial buys and data-driven repurchasing decisions to test new products.
• We directly and actively coordinate with our suppliers on every step of our product development and production process to ensure that our extremely high quality standards are met.
• We also have a dynamic merchandising model with lessened inventory risk, as a result of the largely non-discretionary, replenishment-driven nature of scrubwear and a focus on our core scrubs offerings.

Industry Context

The company operates in a large and fragmented healthcare apparel market, positioning itself as a category-defining brand by elevating scrubs and creating premium products. The business model is direct-to-consumer, leveraging digital platforms and physical retail stores (Community Hubs). The industry is highly competitive, with rivals ranging from established wholesalers to digitally native brands and potential entrants from large diversified apparel companies. The demand for products is influenced by the largely non-discretionary nature of scrubwear, but also by macroeconomic pressures, global trade policies (tariffs), and healthcare workforce-related stress.

Comparison to Industry Standards

• The company's average order value (AOV) of $114 in Q3 2025 and $117 for the nine months is noted as 'relatively high,' which is stated to demonstrate the premium nature of its product, though no specific industry benchmarks or competitor AOVs are provided for direct comparison.
• The company competes against wholesalers like Careismatic Brands, Barco Uniforms, Landau Uniforms, and Superior Group of Companies, as well as specialty retailers such as Scrubs & Beyond and Uniform Advantage, and digitally native brands like Jaanuu and Mandala, but specific comparative performance metrics are not detailed.

Corporate Governance

Legal Proceedings

• A putative securities class action complaint, initially filed in November 2022 and consolidated in February 2023, was dismissed with prejudice in January 2025, with judgment entered on February 13, 2025. Plaintiffs have filed a notice of appeal from this dismissal.
• Related derivative lawsuits (McMurtrie Action, Wubben Action, Lawani Action, Kimmen Action, Carter Action) are currently pending, have been consolidated, and are voluntarily stayed. These suits largely track the factual allegations made in the Class Action Securities Litigation.
• The company intends to vigorously defend against all such claims, but the outcome cannot be predicted with certainty and could adversely affect business and financial condition.

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. Heather Hasson, Executive Chair of the Board, is the 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), for $1.0 million of FIGS products. BCG is a beneficial owner of greater than 5% of the company's outstanding Class A common stock.
• For the nine months ended September 30, 2025, the company sold $0.2 million of FIGS products to affiliates of 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: Potential for increased value from improved profitability and share repurchase program, but also risks from legal proceedings, cash flow decline, and stock price volatility. The dual-class structure and voting agreements may limit influence on corporate matters.
• Employees: Increased investment in personnel is noted, but the company faces competition for talent and risks related to labor costs and workplace safety.
• Customers: Continued focus on product innovation, brand experience, and international expansion aims to benefit customers. Risks include potential shipping delays, product quality issues, and data privacy breaches.
• Suppliers/Manufacturers: The company is diversifying manufacturing operations and renegotiating terms due to tariffs, impacting supplier relationships and costs.
• Creditors: The extension of the credit facility maturity date provides stability, but restrictive covenants within the agreement apply.

Next Steps

• Continue to implement operational plans and strategies, and improve and expand infrastructure of people and information systems.
• Expand, train, and manage the employee base, particularly in competitive markets like Southern California and Goodyear, Arizona.
• Expand into additional international markets, navigating new risks and challenges.
• Open additional retail stores (Community Hubs) as part of the retail growth strategy.
• Continue to develop and introduce new, innovative, and updated products to meet changing customer demands.
• Strengthen sourcing and manufacturing capabilities, including diversifying operations geographically.
• Implement mitigation strategies in response to tariffs, such as adjusting sourcing countries and renegotiating supplier terms.
• Operate additional fulfillment centers in the future to keep pace with business growth.
• Continue to invest in and implement modifications and upgrades to IT Systems and procedures.
• Vigorously defend against ongoing legal claims, including the appealed securities class action and pending derivative suits.
• Continue the share repurchase program, with approximately $52.0 million available for future repurchases.
• Evaluate the effects of recently issued accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-06) on financial statements.

Key Dates

Recommendation

While FIGS demonstrated strong revenue growth and a significant return to profitability in Q3 2025, driven by improved margins and operational efficiency, the substantial decline in operating and free cash flow is a notable concern. The extension of the credit facility and increased share repurchase program are positive for liquidity and shareholder returns, but the estimated future impact of tariffs on gross margin, particularly for 2026, presents a significant headwind. The ongoing legal proceedings also add an element of uncertainty. Given the mixed financial signals—strong top-line and profitability improvements offset by deteriorating cash flow and future tariff risks—a 'Hold' recommendation is appropriate for a seasoned investor. This allows for monitoring the company's ability to convert profits into cash, manage tariff impacts, and resolve legal matters before making a more definitive investment decision.

Keywords

Healthcare apparel, Scrubs, Direct-to-consumer, DTC, Financial results, Q3 2025, SEC filing, 10-Q, Revenue, Net income, Gross margin, EBITDA, Active customers, Average Order Value, Tariffs, Supply chain, Share repurchase, Credit facility, Corporate governance, Risk management, Legal proceedings, International expansion