FIGS, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear Q4-specific financial results.
Business context
FIGS is a direct-to-consumer healthcare apparel and lifestyle company, selling primarily through its website and mobile app. Scrubwear generated approximately 82% of FY2022 revenue ($415.9 million of $505.8 million); non-scrubwear generated $89.9 million. The company reported approximately 2.3 million active customers at year-end.
Key financial results
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net revenue | $505.8 million | $419.6 million | Up 20.6% |
| Gross profit / margin | $354.5 million / 70.1% | $301.2 million / 71.8% | Margin down 1.7 percentage points |
| Operating income / margin | $37.7 million / 7.4% | $11.0 million / 2.6% | Improved |
| Net income (loss) / margin | $21.2 million / 4.2% | $(9.6) million / (2.3)% | Returned to profitability |
| Adjusted EBITDA / margin | $87.3 million / 17.2% | $105.2 million / 25.1% | Adjusted EBITDA declined despite higher revenue |
| Operating cash flow | $(35.3) million | $66.4 million | Declined $101.8 million |
| Free cash flow | $(40.7) million | $63.7 million | Negative in FY2022 |
Net revenue growth was driven mainly by more orders from new and existing customers, and to a lesser extent higher average order value. Active customers rose 22.5% to 2.294 million; average order value increased to $112 from $105, while revenue per active customer declined to $221 from $224.
Selling expense rose 44.6% to $118.4 million, reflecting higher fulfillment, storage and shipping costs. Marketing expense rose 32.3% to $77.7 million as the company increased brand-marketing investment. General and administrative expense fell 19.4% to $120.7 million, primarily because stock-based compensation declined to $37.5 million from $81.1 million; FY2021 included significant IPO-related equity compensation. FY2022 effective tax rate was 45.3%.
Liquidity, debt and cash flow
Cash and cash equivalents were $159.8 million at year-end, down from $195.4 million. Inventory increased to $178.0 million from $86.1 million. Management attributed the operating cash outflow largely to working-capital movements, including $55.6 million of higher inventory purchases, as well as payment timing for accrued expenses, taxes and receivables.
There were no borrowings under the $100 million revolving credit facility at year-end; $95.6 million remained available after $4.4 million of letters of credit. The facility matures in September 2026 and is secured by substantially all company assets. Management said cash, operating cash flows and available borrowing capacity should cover working capital and capital expenditure needs for at least 12 months. FY2022 capital expenditures were $5.3 million.
Changes, outlook and risks
- Gross margin contracted due principally to a higher mix of promotional sales, with higher inbound freight costs and product mix also contributing. The company reported elevated freight costs during FY2022 and said it may continue to face elevated ocean freight expense and use air freight as needed.
- Sales growth moderated as purchase frequency softened, including in Q4; management cited inflationary pressure on consumer spending. It expected macroeconomic pressures to affect near-term results but provided no numeric guidance in the supplied text.
- Inventory on hand and associated storage costs were elevated following improved ocean transit times and sales below expectations earlier in the year. The company said it was adjusting future inventory purchases; inventory risk remains relevant if demand falls or excess stock requires discounting.
- Supply-chain concentration is material: the vast majority of fabrics came from two suppliers in China, and the three largest manufacturing suppliers produced the vast majority of products. Freight, raw-material costs, tariffs, labor costs and disruptions could pressure margins or availability.
- FY2022 inventory purchase obligations were approximately $50.5 million. The company had no dividend plan for the foreseeable future.
- Legal matters include a securities class action alleging misleading statements about air freight, supply chain, repeat customers and outlook; the company said it intends to defend the case and recorded no accrual for ongoing litigation. A separate former-stockholder case remained pending. The Strategic Partners litigation was settled in February 2023 with no payment or other substantive obligations by either party.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. FIGS became a large accelerated filer and exited emerging-growth-company status as of December 31, 2022.
Important facts for investors to verify
- Q4-specific revenue, margins, earnings and cash flow in the supplemental quarterly results; these values are not clear in the supplied 10-K text.
- Whether inventory levels normalize, and the effects of future markdowns, storage costs and inventory purchase commitments on gross margin and cash conversion.
- Whether active-customer growth and order frequency stabilize, given the reported decline in revenue per active customer and softer purchase-frequency trends.
- Freight and sourcing developments, including supplier concentration and potential effects of trade restrictions or customs inspections.
- Developments and potential exposure in the pending securities and former-stockholder litigation.
- Adjusted EBITDA and free cash flow alongside GAAP earnings and operating cash flow; these non-GAAP measures have company-defined adjustments and limitations.