FIGS Inc's Q1 2025 Earnings: Growth Amid Tariff-Driven Headwinds

The first quarter of 2025 brought a mixed performance for FIGS Inc (FIGS), the scrubs and lifestyle apparel brand, as it navigated rising costs, tariff pressures, and shifting consumer behaviors. While revenue grew modestly, profitability took a hit, underscoring the challenges of balancing growth with margin management. Let’s dissect the numbers and strategic priorities to assess whether this quarter’s results signal long-term resilience or near-term vulnerability.

Revenue Growth, But at a Cost

Total net revenues rose 4.7% year-over-year to $124.9 million, driven by a record average order value ($119) and strong international expansion. Scrubwear, the core business, grew 4.9% to $99.6 million, while non-scrubwear lines (e.g., loungewear, activewear) added $25.3 million—a 3.8% increase. International sales surged 16.4%, with Mexico, Europe, and the Middle East leading the charge. Management highlighted plans to enter Japan and South Korea, signaling further global ambitions.

However, profitability suffered. Gross margin dipped 130 basis points to 67.6%, pressured by a 22% jump in freight costs and a shift toward lower-margin products. Operating expenses remained disciplined, rising just 3.6%, but adjusted EBITDA plummeted 31% to $9.0 million. The net loss of $0.1 million marked a stark contrast to the $1.4 million profit in Q1 2024, reflecting the strain of cost inflation and trade-related headwinds.

Operational Strengths and Weaknesses

• Customer Retention: Active customers rose 3.8% to 2.7 million, with reactivation of lapsed U.S. buyers boosting sales.
• Margin Risks: The net revenue per active customer fell 1% to $208, suggesting a slight decline in purchase frequency.
• International Momentum: Growth in markets like Europe (up 20%) and Mexico (up 25%) offset softness in Canada, where tariffs dampened demand.

Strategic Priorities and Challenges

1. Tariff Mitigation: Management emphasized avoiding price hikes for healthcare workers earning under $100k annually, instead relying on supply chain optimizations and vendor negotiations.
2. B2B Expansion: Securing a major healthcare client and targeting the 15% of professionals not yet purchasing scrubs points to untapped B2B potential.
3. Inventory Risks: Q2 may see elevated inventory levels due to trade uncertainties, requiring “nimble” management to avoid overstocking.

Outlook and Risks

For 2025, FIGS forecasts low-single-digit revenue declines and an adjusted EBITDA margin of 7.5%-8.5%. The cautious guidance reflects concerns about economic uncertainty, reduced promotional activity, and lingering tariff impacts. However, the company’s $251 million cash balance provides a cushion for strategic investments, such as B2B infrastructure and Asia-Pacific expansion.

Conclusion: Navigating Headwinds for Long-Term Gains

FIGS’ Q1 results paint a picture of a brand with enduring customer loyalty and global appeal but facing near-term execution risks. The 4.7% revenue growth and record AOV suggest the core scrubwear business remains robust, while international markets offer clear growth avenues. However, the 31% drop in adjusted EBITDA and net loss highlight the fragility of margins in a cost-driven environment.

Investors should weigh two factors:
1. Brand Equity: The reactivation of U.S. customers and premium product mix indicate strong brand stickiness, a key moat in apparel retail.
2. Execution Risks: Tariff mitigation and inventory management will be critical. If FIGS can stabilize gross margins near 68% while expanding internationally, the long-term outlook improves.

With a stock price down 20% year-to-date (as of Q1 2025), the valuation may reflect pessimism around short-term margin pressures. However, the balance sheet’s health and strategic focus on B2B and Asia-Pacific markets suggest patience could be rewarded. For now, FIGS remains a story of growth amid turbulence—a brand capable of rising above near-term hurdles if it can navigate costs and tariffs effectively.