FIGS, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the figures below are full-year results, not standalone fourth-quarter results.
Business context
FIGS is a founder-led, direct-to-consumer healthcare apparel and lifestyle company. It sells primarily through its digital platforms, including its TEAMS business, and opened its first permanent retail store, a Los Angeles “Community Hub,” in 2023. Scrubwear generated over 71% of 2023 net revenue. At year-end, the company reported approximately 2.6 million active customers, up from 2.3 million.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Net revenue | $545.6 million | $505.8 million | +7.9% |
| Gross profit / margin | $377.0 million / 69.1% | $354.5 million / 70.1% | Margin down 1.0 percentage point |
| Operating income / margin | $34.0 million / 6.2% | $37.7 million / 7.4% | Income down 9.6% |
| Net income / margin | $22.6 million / 4.1% | $21.2 million / 4.2% | Income up 6.8% |
| Diluted EPS | $0.12 | $0.11 | Up $0.01 |
| Adjusted EBITDA / margin | $86.0 million / 15.8% | $87.3 million / 17.2% | EBITDA down $1.3 million |
| Operating cash flow | $100.9 million | $(35.3) million | Improved $136.2 million |
| Free cash flow | $84.6 million | $(40.7) million | Improved $125.3 million |
Cost of goods sold rose 11.4%, faster than revenue, reflecting higher order volume. Management attributed lower gross margin mainly to product mix, higher duties and more promotional sales, partly offset by lower air-freight use and ocean-freight rates. General and administrative expense increased 16.6% to $140.7 million, including higher people costs and stock-based compensation; stock-based compensation expense was $45.8 million. Marketing expense declined 0.8% to $77.1 million.
Active customers increased 13.0%, while revenue per active customer fell to $210 from $221. Average order value rose to $115 from $112. The filing says customer additions in Q4 were not at prior accelerated rates and repeat-purchase frequency had declined.
At December 31, 2023, cash and cash equivalents were $144.2 million and short-term investments were $102.5 million. The company had no borrowings under its $100 million revolving credit facility, with $95.1 million available after $4.9 million of letters of credit. Total liabilities were $96.4 million, including $47.1 million of operating lease liabilities. Inventory was $119.0 million, down from $178.0 million. The company stated that cash, operating cash flows and available facility borrowings should cover working capital and capital needs for at least the next 12 months.
Operating cash flow improved substantially, primarily due to working-capital movements, including lower inventory purchases. Investing cash outflow was $117.2 million, reflecting $150.1 million of purchases of available-for-sale securities and $16.3 million of capital expenditures, partly offset by $49.3 million of investment maturities.
Material changes and outlook
- Revenue growth continued but slowed to 7.9%. Scrubwear revenue was $440.0 million; non-scrubwear revenue was $105.7 million. U.S. revenue was $483.5 million and rest-of-world revenue was $62.2 million.
- Profitability was mixed: net income increased modestly, while operating income, gross margin and Adjusted EBITDA margin declined. Higher interest income contributed to results: other income, net, rose to $6.8 million from $1.1 million.
- Management cited inflationary pressure on customer spending and expects it to continue affecting purchasing activity in the near term. The filing cautions that revenue growth could slow further or decline; it does not provide a clear numerical revenue or earnings forecast.
- The fulfillment-center transition is expected to begin distribution operations by Q3 2024. FIGS incurred $1.2 million of transition operating expense and $12.2 million of capital expenditures in 2023. It expects approximately $14 million of transition operating expense and $13–$14 million of capital expenditures in 2024.
- Red Sea disruptions have delayed shipments of raw materials and finished goods, including from Jordan, and increased ocean freight rates. The company reported no material supply-chain disruption to date but warned continued hostilities could raise freight costs and affect supply.
- FIGS plans another Community Hub in Philadelphia in summer 2024. Retail expansion, new product categories and the fulfillment transition bring execution, cost and inventory risks.
Risks, contingencies and unusual items
- Demand and margins: Slower customer acquisition, lower repeat-purchase frequency, macroeconomic pressures, promotions and competition could weigh on growth and margins. Historical growth is not presented as indicative of future performance.
- Supply chain: FIGS relies on third-party suppliers and manufacturers, sources most fabric from a limited number of suppliers in China, and has significant production exposure in Asia. Freight disruption, tariffs, raw-material availability and forced-labor import restrictions are identified risks.
- Fulfillment and inventory: The facility transition and reliance on third-party logistics providers could disrupt shipping, customer service or inventory controls. Inventory purchase obligations were approximately $67.2 million at year-end.
- Litigation: A securities class action was dismissed without prejudice on January 17, 2024, with plaintiffs permitted to amend. Related derivative actions were stayed. The company says potential loss is neither probable nor reasonably estimable and recorded no accrual; outcomes remain uncertain.
- Governance: The dual-class structure gives Class B shares 20 votes each versus one vote for Class A. The founders and Thomas Tull together control a majority of voting power; FIGS relies on certain NYSE controlled-company exemptions.
- Other items: The effective tax rate was 44.5% in 2023. The company reported no outstanding facility borrowings, and its auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether customer acquisition and repeat-purchase frequency stabilize, particularly given the decline in revenue per active customer.
- Whether gross margin and Adjusted EBITDA margin recover, and how promotions, product mix, duties and freight costs evolve.
- Whether the fulfillment transition meets its timeline and budget, and whether the projected 2024 costs affect operating results and cash flow as expected.
- Whether Red Sea-related shipping delays and freight increases materially affect product availability, costs or delivery times.
- Developments in the securities and derivative litigation, including any amended claims and potential financial exposure.
- How the $67.2 million of inventory purchase obligations, lease commitments and planned capital spending compare with demand and available liquidity.