FIGS, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. FIGS is a direct-to-consumer healthcare apparel and lifestyle company, selling primarily through digital channels. Financial statements are unaudited.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net revenue | $119.3 million | $120.2 million | Down 0.8% |
| Gross profit / margin | $82.1 million / 68.9% | $85.7 million / 71.3% | Margin down 2.4 percentage points |
| Operating income / margin | $0.4 million / 0.4% | $3.3 million / 2.7% | Lower |
| Net income / margin | $1.4 million / 1.2% | $1.9 million / 1.6% | Lower |
| Adjusted EBITDA / margin (non-GAAP) | $13.0 million / 10.9% | $16.1 million / 13.4% | Lower |
| Operating cash flow | $11.6 million | $(2.9) million | Improved |
| Free cash flow (non-GAAP) | $11.1 million | $(3.7) million | Improved |
Revenue declined mainly because orders fell, partly offset by higher average order value ($116 versus $114). Active customers rose 8.7% to approximately 2.6 million, while trailing-twelve-month revenue per active customer decreased to $210 from $216. U.S. revenue was $103.1 million (down from $107.7 million); rest-of-world revenue was $16.2 million (up from $12.6 million). Scrubwear revenue was $94.9 million and non-scrubwear revenue was $24.4 million.
Gross margin pressure reflected product mix, a higher promotional-sales mix and higher duties, partly offset by lower freight expense. Operating expenses were $81.7 million, broadly flat year over year: selling expense fell 8.7%, marketing rose 1.1%, and general and administrative expense rose 5.4%. Higher interest income lifted other income to $2.8 million from $1.1 million. The effective tax rate was 56.3% in both periods, with state taxes and limits on officer-compensation deductions cited as primary factors.
Financial position and liquidity
- Cash and cash equivalents were $155.3 million at March 31, 2024, up from $144.2 million at year-end 2023. Short-term investments were $103.8 million; together these totaled approximately $259.2 million.
- Current assets were $405.6 million and current liabilities were $71.8 million. Inventory was $130.5 million, up from $119.0 million at December 31, 2023.
- No borrowings were outstanding under the $100 million revolving credit facility; $95.1 million of borrowing capacity remained after $4.9 million of letters of credit. The facility matures in September 2026.
- Operating cash flow improved primarily because of timing of payments on accounts payable and accrued expenses; higher inventory purchases partly offset the improvement. Investing cash flow was $(0.5) million and financing cash flow was $0.01 million.
Changes, outlook and notable items
- Management said near-term revenue may grow more slowly than in the past or decline; the filing provides no numerical revenue or earnings guidance.
- FIGS continued its fulfillment-center transition, targeting completion by the end of Q3 2024. It incurred approximately $4.2 million in project capital expenditures during Q1 and expects another $9–$10 million during the remainder of 2024. The new facility will be operated by a third-party logistics provider.
- Red Sea disruptions have caused shipping delays and higher ocean freight costs, including for supply-chain partners in Jordan. The company reported no material supply-chain disruption or material cost increase to date, but warned that prolonged hostilities could raise shipping costs and affect operations.
- Inventory purchase obligations were $54.1 million at March 31. Operating lease liabilities totaled $58.3 million; Q1 lease expense was $2.2 million, versus $0.8 million a year earlier.
- A securities class action and related derivative suits remain pending. The class action was refiled after dismissal without prejudice; defendants’ May 3, 2024 motion to dismiss was pending. The company recorded no accrual because potential loss was not considered probable or reasonably estimable.
- After quarter-end, director Michael Soenen gave notice of resignation effective May 9, 2024, stating it was not due to disagreement with the company. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Assess whether revenue and order trends stabilize, given lower orders and revenue per active customer despite customer growth and higher AOV.
- Track gross margin recovery and the effects of product mix, promotions, duties, freight costs and international sales.
- Verify fulfillment-transition timing, spending against the remaining capital plan, and any resulting service disruption or additional expense.
- Separate recurring operating cash generation from working-capital timing effects; monitor inventory and the $54.1 million of purchase obligations.
- Follow Red Sea shipping conditions, the securities and derivative litigation, and any changes to liquidity, facility availability or management’s outlook.