Figs (FIGS) Q1 2024 Earnings Name Transcript

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Now I want to flip the decision over to Trina Spear, chief government officer of FIGS.

Trina Spear — Co-Founder and Chief Govt Officer

Thanks, Jean. We had been happy with our first quarter outcomes. Internet revenues got here in on the higher finish of our anticipated vary at down lower than 1% and the adjusted EBITDA margin of 10.9% exceeded our expectations. We had been particularly excited to see improved momentum in our enterprise starting in mid-March and into the second quarter.

Over the past two quarters, we mentioned components that we believed had been impacting our efficiency, and we made adjustments in response to those challenges. We received again to our roots in delivering unbelievable product innovation coupled with impactful storytelling centered across the healthcare group. And we’re seeing these actions start to repay. As we have now mentioned up to now, healthcare professionals want their uniforms to carry out at their jobs and must frequently replenish these merchandise.

The extremely enticing fundamentals of our enterprise are largely as a result of repeat frequency dynamics of healthcare attire. We’re seeing these frequency traits start to stabilize and we plan to construct on this momentum. Reflecting on the enterprise, we’re delivering robust efficiency throughout our progress methods, beginning with product. We raised the bar on innovation.

Over the past two years, we have bolstered our product workforce, additional constructing out our design and technical growth expertise. We have additionally bolstered our provide chain with best-in-class manufacturing companions. The outcomes of those investments are starting to bear fruit. Within the first quarter, we noticed robust engagement generated by new merchandise, together with our On-Shift Sherpa Bomber Jacket, Seville ScrubLegging, and Isabel Large Leg Scrub Pants.

Notably, these launches additionally created demand for our core assortment. That is just the start. We plan to supply a gentle stream of true Pinnacle merchandise, together with new fabrications and classes that may push the boundaries of something healthcare professionals have ever seen earlier than. We consider this innovation will deliver unprecedented performance, match, consolation, design with better velocity.

The halo from these Pinnacle merchandise can be driving demand for our core kinds. As a part of our amplified innovation technique, we have now made the choice to speed up the timeline of our initiative to enhance match consistency throughout our assortment. We started to introduce our new match blocks in April and now count on to finish the rollout by October, 2024. Our new product innovation can be fused with advertising and marketing campaigns rooted in true storytelling, centered on the Superior People that make up our group.

In April, as a part of our excessive sequence, we launched our CALL OF THE WILD marketing campaign that includes Dr. Chloe, a veterinarian who operates on the entrance line of wildlife conservation. The product capsule featured our indestructible scrub general and scrub jumpsuit, every of which rapidly bought out. The gathering was made in a brand new fabrication that is robust on the skin and tender on the within, offering further sturdiness, stretch, moisture wicking, and water resistance.

The product launch was amplified by a meticulously executed marketing campaign that celebrated this extraordinary work. The marketing campaign which we filmed in South Africa, captured the hearts and the minds of our group, drawing 9 million impressions amongst a variety of healthcare professionals who had been in awe of Dr. Chloe’s mission. This previous Sunday, the kickoff Nurses Week, we hosted a celebratory occasion in New York Metropolis with over 100 Superior People.

On Monday, we introduced 13 nurses from throughout the nation to ring the opening bell on the New York Inventory Change in recognition of Nurses Week. We additionally kicked off our annual I’m a Nurse marketing campaign which celebrates our unbelievable nursing group. The momentum we have now seen in our latest launches, illustrates the chance we have now to actually lead with model storytelling. At FIGS we obsess over buyer journeys and have a look at the total advertising and marketing funnel to satisfy our group members the place they’re.

We have now a tremendous group and we offer the platform for them to share their tales. Superior People storytelling just isn’t new for us, it is in our DNA. And as we glance forward, we have now an enormous alternative to ship extra tentful, brand-defining campaigns and to place extra funding behind high of the funnel initiatives. In parallel, we’ll proceed to deal with the distinctive wants and pursuits of healthcare professionals, and successfully transfer prospects by way of a full journey, driving not solely consciousness, but in addition consideration and conversion, guaranteeing that every advertising and marketing contact level builds on the final.

This method will result in better model engagement amongst new, lapsed and current prospects and gasoline progress and profitability. Primarily based on our latest robust momentum, we’re additional leaning in and taking greater and bolder steps to develop our group globally throughout channels. This implies we’re strategically ramping investments primarily round model advertising and marketing and responses encouraging traits we’re seeing within the U.S. market, robust momentum in our worldwide enterprise, and a rising community of establishments becoming a member of our workforce’s platform.

Worldwide web revenues grew 29% within the first quarter in comparison with final 12 months. We’re reflecting the reclassification of responsibility subsidies which negatively impacted web income progress by a 11 proportion factors. We proceed to achieve traction throughout the nations we serve and plan to determine new markets the place we consider FIGS can turn out to be the chief in healthcare attire. Much like the constructing blocks of our success within the U.S., our world advertising and marketing technique focuses on all funnel storytelling with investments in our ambassador program, digital advertising and marketing, and localized e-commerce experiences.

Turning to TEAMS. We made investments in constructing foundational ordering experiences for 2 of our largest groups prospects with the event of the AYA gifting platform and the veg-typing expertise. Trying forward, we’re desperate to evolve and amplify these and different ordering platforms with the help of an outbound gross sales workforce and digital advertising and marketing effort in an effort to serve extra groups in additional methods. Lastly, with respect to retail, we’re extremely excited by the prospect of with the ability to serve extra healthcare professionals and look ahead to the opening of our Philadelphia location.

We acknowledge that we’re early in our retail journey and we’re studying extra every day. We stay dedicated to our check, study, apply, and win method with places and codecs, and don’t at the moment plan to meaningfully speed up new hub openings till we will obtain key proof factors. Operationally, we’re on observe with our success middle transition designed to help better scale, enhance flexibility and reliability, and ship better effectivity. As well as, the foundational work behind this facility will assist us to broaden and scale our distribution community globally.

This won’t solely help our progress, however allow us to ship a superior buyer expertise throughout geographies. Importantly, we stay dedicated to delivering unbelievable model cultural moments supporting the healthcare group by highlighting the work that they do and by giving again. In January, we opened the FIGS Working Theater in Ukwala, Kenya, a state-of-the-art facility that’s the first of its sort within the area. It is now creating sustainable change for individuals on this group who beforehand needed to drive hours to obtain surgical care.

As we glance to the rest of 2024, we consider we’re on the precise path to reignite the joy and phrase of mouth dynamics that propelled us to a management place within the business. We’re seeing the traits transfer in a optimistic course, and we’re strategically investing in that momentum whereas remaining disciplined and controlling our bills. The long-term progress outlook of the healthcare business and favorable replenishment dynamics, coupled with our robust debt-free steadiness sheet and sturdy money move era, present a stable basis to execute and put money into our progress plan. Because the distant chief in healthcare attire, we acknowledge the pressing must serve healthcare professionals and we’re on the forefront of this effort.

Now I’ll move it over to Kevin Fosty to debate our monetary outcomes and supply an replace on our outlook.

Kevin Fosty — Interim Chief Monetary Officer

Thanks, Trina. For the primary quarter, web revenues got here in on the higher finish of our steerage vary whereas adjusted EBITDA margin exceeded our expectations, yielding robust free money move era. We had been additionally inspired to see enhancing traits notably round repeat frequency indicating that our product and advertising and marketing methods are gaining traction. With a steadfast dedication to serving the healthcare group, we’re extremely optimistic about our potential to drive accelerated progress into the long run.

Whereas margins are anticipated to be impacted within the quick time period, we’re assured that these investments won’t solely drive greater web revenues progress sooner or later, but in addition stronger and extra sustainable profitability. I’ll start my dialogue with an in depth evaluate of our first quarter outcomes, adopted by an replace on our monetary outlook. Beginning with our first quarter outcomes. Internet revenues decreased 0.8% to $119.3 million as in comparison with Q1 final 12 months.

Internet revenues mirror $1.4 million in contra income related to responsibility subsidies paid for worldwide prospects. As a reminder, responsibility subsidies had been recorded as promoting expense in final 12 months’s first quarter. Energetic prospects for the trailing 12-month interval elevated 8.6% in comparison with the identical interval final 12 months. Common order worth elevated 1.8% to $116 within the first quarter reflecting greater AUR attributable to product combine and better UPTs.

Internet revenues per energetic buyer on a trailing 12-month foundation decreased 2.8% to $210 versus the identical interval final 12 months. These metrics mirror the aforementioned worldwide responsibility subsidies which negatively impacted each AOV and web revenues per energetic buyer progress by roughly 1 proportion level every. product classes, non-scrubs grew 9% reaching 20.5% of web revenues. Gross margin for Q1 was 68.9%, in comparison with 71.3% in Q1 of 2023.

The decline in gross margin fee was primarily attributable to product combine shift. Promoting expense for Q1 was $28.5 million representing 23.9% of web revenues, in comparison with 25.9% in Q1 2023. The lower in promoting expense as a proportion of web revenues primarily displays responsibility subsidies that had been recorded in promoting expense final 12 months and are actually mirrored in web revenues as contra income. These prices had been partially offset by start-up prices related to the transition of our success middle to a brand new facility.

As Trina talked about, the brand new facility will allow better efficiencies and set the inspiration to broaden our distribution community. Please notice, transitory prices associated to the success enhancement challenge got here in under our expectations, partially attributable to a timing shift into the second quarter and partially attributable to decrease than anticipated start-up prices. Advertising expense for Q1 was $17.2 million, representing 14.5% of web revenues, in comparison with 14.2% in Q1 2023. The rise in advertising and marketing expense as a proportion of gross sales was largely attributable to an elevated combine in worldwide advertising and marketing spend.

G&A for Q1 was $36 million, representing 30.2% of web revenues, in comparison with 28.4% in Q1 2023. The rise in G&A as a proportion of gross sales was largely as a result of continued investments in individuals. This was partially offset by a lower in authorized charges, decrease accrual for charitable donations, and decreased skilled charges versus final 12 months. Taking this to the underside line, first quarter web earnings was $1.4 million or diluted EPS of $0.01.

First quarter 2023 web earnings was $1.9 million or $0.01 in diluted EPS. Adjusted EBITDA for Q1 was $13 million with an adjusted EBITDA margin of 10.9%, in comparison with 13.4% in Q1 2023. Concerning our steadiness sheet, we completed the primary quarter with money and money equivalents and short-term investments $259.2 million. Stock declined 28% to $130.5 million versus Q1 final 12 months as we proceed to make progress in bringing our stock again to normalized ranges.

Total, we’re very snug with the composition of our stock. Capital expenditures for the primary quarter totaled $4.5 million. That is largely related to the success transition challenge. And at last, we delivered robust free money move of $11.1 million within the first quarter.

Turning to our outlook. Primarily based on latest efficiency and the optimistic influence from our model initiatives we have now in place, we’re elevating our full-year web revenues outlook to unfavorable 2% to optimistic 2% as, in comparison with 2023 and versus prior steerage of down 5% to flat. As a reminder, we count on Q3 to be the hardest year-over-year comparability when it comes to web revenues progress, primarily as a result of anniversary of final 12 months’s extremely profitable pattern sale in September. Our gross margin outlook for the 12 months is unchanged and anticipated to be in-line with our 2023 gross margin fee.

We’re dedicated to enhancing product innovation by way of new fabrications, superior options, and designs tailor-made to satisfy the wants of healthcare professionals with premium merchandise at distinctive worth, which can influence gross margin fee within the quick time period, however we’re assured that we are going to drive greater margin long run. First, as we broaden and diversify our fabrications and product classes, we anticipate realizing economies of scale over time, subsequently mirroring the margin trajectory delivered by our core scrub ware and FIONx traces over time. And second, we count on new innovation to additionally drive our greater margin core enterprise. Additionally notice that we count on the responsibility downside profit anticipated for later this 12 months to offset among the headwind from new product innovation.

Turning to promoting expense. Complete transitory prices related to our success enhancement challenge are actually estimated to be roughly $13 million, barely under our earlier expectation of $14 million. We count on to comprehend the majority of those transitory bills within the second quarter. Be aware {that a} portion of success prices that we assume would fall within the first quarter shifted to the second quarter.

We anticipate the transition to be largely full by the top of the third quarter. With respect to advertising and marketing spend, we plan to extend our funding as a proportion of web revenues as we construct on our momentum. The vast majority of the upper funding can be incurred within the third quarter coinciding with a large-scale model marketing campaign. With respect to G&A, we plan to take care of investments in key areas of our enterprise, notably in expertise, whereas rigorously managing bills to determine financial savings alternatives.

On account of these components adjusted EBITDA margin for full 12 months 2024 is now anticipated to be between 9.5% and 10.5%. This displays roughly 220 foundation factors of price headwind from the transitory portion of our success challenge. Turning to our second quarter 2024 outlook, we count on web revenues progress of between 3% and 4%. We count on gross margin to be down versus Q2 final 12 months, largely attributable to a product combine shift.

Importantly, whereas there could also be fluctuations within the quick time period, we intention to take care of a wholesome margin fee whereas additionally making the precise investments in our long-term progress. working bills. For promoting expense, we count on deleverage of roughly 330 foundation factors, which takes into consideration greater transitory and ongoing success prices. Consequently, we count on second quarter adjusted EBITDA margin to be roughly 8.5%.

Our capital expenditure’s expectation for 2024 continues to be between $18 million and $19 million, together with $13 million to $14 million in success enhancement-related prices. In closing, we’re delighted to see the optimistic traits in our enterprise. Transferring ahead, we’ll proceed to capitalize on our sturdy steadiness sheet and cashflow dynamics to strategically put money into our future progress. With that, I’ll flip it over to the operator to kick off our Q&A session.

Operator?

Questions & Solutions:

Operator

We are going to now start our question-and-answer session. [Operator instructions] Our first query comes from Brian Nagel with the corporate Oppenheimer. Brian, your line is now open.

Brian Nagel — Oppenheimer and Firm — Analyst

Hello. Good afternoon. First off, congratulations on the pick-up in your corporation these days. The primary query I wish to ask — the primary query I wish to ask, simply with regard to the, I assume, the changes to the steerage after which the dialogue across the investments there.

So the query is, the way in which I wish to ask it’s, as we take into consideration — you take income steerage up, EBITDA margin steerage down. So are these incremental investments, are you taking a look at them extra as a sort of a shorter-term dynamic to capitalize upon this enhancing pattern, or is that this one thing that is going to principally change the price of doing enterprise for FIGS over an extended time period?

Trina Spear — Co-Founder and Chief Govt Officer

Positive. Thanks, Brian. So I feel as you already know, the basics of our enterprise have all the time been extremely enticing. On the middle of that’s the metric of repeat frequency.

By the character of what we promote, uniforms and who we promote to healthcare professionals, we naturally profit from frequent replenishment. And so, we noticed within the second half of March going into Q2, we noticed these traits enhance. And we actually are attributing that to robust engagement round our product launches mixed with the advertising and marketing campaigns that we have put out which have all been centered across the healthcare group. And so that’s the place we’re seeing the dynamic shift and why we’re growing our income steerage for the 12 months.

We’re being prudent, given it is nonetheless early days. And we’re seeing this dynamic working between product and advertising and marketing coming collectively. We’re investing behind that and that’s the place you see the EBITDA steerage. We’re bringing that down and that may be virtually absolutely attributed to this enhance in model advertising and marketing spend that very a lot is a short-term dynamic as we proceed to put money into what’s working, as we proceed to scale and construct the enterprise to a billion {dollars} and past.

Brian Nagel — Oppenheimer and Firm — Analyst

Bought it. That was useful, Trina. The second query I’ve simply on the gross margin, So I assume, gross margin tracked just a little bit weaker than the forecast on the market. You’ll information it to be down, however you talked concerning the product combine shift.

Is {that a} — was {that a} shorter-term dynamic, too, or is that one thing we must always count on to persist?

Trina Spear — Co-Founder and Chief Govt Officer

In order we shift into constructing out our classes, constructing out fabrication along with elevating the bar in high quality because it pertains to our options and traits, there could also be some greater product costing related to that. However it’s actually a short-term dynamic as a result of as you have seen with FIONx with our core scrub ware over time, we get economies of scale over time. And so, we glance to see that in our new innovation. We glance to see an analogous margin curve over time that we noticed with core scrub ware.

And so, it is all about balancing and gaining leverage from that core to put money into the way forward for the enterprise, put money into innovation. And so, you already know the gross margin this 12 months and past that is sort of how we give it some thought.

Brian Nagel — Oppenheimer and Firm — Analyst

Bought it. Respect it. Thanks.

Operator

Thanks. Our subsequent query comes from Rick Patel with the corporate Raymond James. Rick, your line is now open.

Rick Patel — Raymond James — Analyst

Thanks. Good afternoon, and properly accomplished on the brand new innovation right here. I am hoping you possibly can present some extra colour on the form of income progress that you simply gave. So are you able to assist us with the constructing blocks for the way that progress is achieved as we take into consideration progress in energetic prospects versus frequency and AOV?

Trina Spear — Co-Founder and Chief Govt Officer

Positive. In order you have seen we have had quite a few beneficial properties from — let’s begin with AOV. AOV was $94 in 2019. We completed this final quarter at $116.

That is a perform of each AUR and UPT. So AUR is pushed by actually constructing out our layering system. You are seeing footwear, outerwear, FIGSPRO all have greater retail MSRP, and in order that’s driving AOV progress, in addition to UPT. And simply so as to add to this, I feel it is actually essential to notice that the innovation is a key piece to this.

Our restricted version scrub ware has doubled up to now 12 months. And our non-scrub ware was 18.6% of the enterprise final 12 months, it is 20.5% as of this previous quarter. And so, actually seeing innovation, actually seeing this diversification throughout class to maneuver past an e-com scrubs enterprise. We’re diversifying by class, by fabrication, diversifying by channel and geography.

And all of that’s actually essential as we intention to be an iconic model over the subsequent hundred years. Because it pertains to the information, there will be a modest enhance from an energetic buyer perspective and it really assumes repeat is down. And so, we’re being prudent as we’re seeing some beneficial properties there.

Rick Patel — Raymond James — Analyst

Nice. And may you additionally discuss concerning the potential to chase demand for the innovation that’s working? I do know, stock is down 28%, and it is the place you need it to be general. However do you’ve the precise stock to satisfy the demand for the newer merchandise that you’ve got launched?

Trina Spear — Co-Founder and Chief Govt Officer

Yeah, we really feel actually good about our stock steadiness. As you already know, we have now made unbelievable strides over the past 12 months down 28% 12 months over 12 months, and it’ll proceed to say no on a year-over-year foundation each quarter by way of the top of the 12 months. And we do really feel like we have now the precise stock throughout our core, throughout our restricted version kinds, throughout our pinnacle items which have are available in. And it has been, I do not know for those who noticed our indestructible capsule launch.

So actually thrilling issues to come back. And I feel that — however we’re nimble, proper? And so, we have seen quite a few key launches within the first quarter, our Sherpa Bomber, our Scrub Legging, our Large Leg Pants. And there is quite a few items I am unable to say proper now, as a result of if our healthcare professionals are listening, we’ll get too excited. However we’re chasing, we’re nimble, we’re adjusting as we see that demand, we’re adjusting as we see that pleasure.

Rick Patel — Raymond James — Analyst

Respect the main points. Thanks.

Trina Spear — Co-Founder and Chief Govt Officer

Thanks.

Operator

Thanks. Our subsequent query comes from Lorraine Hutchinson with the Firm Financial institution of America. Lorraine, your line is now open.

Lorraine Hutchinson — Financial institution of America Merrill Lynch — Analyst

Thanks. Good afternoon. I simply wished to comply with up on the model advertising and marketing enhance that you simply’re doing within the third quarter. Trina, you spoke earlier about it being a shorter time period dynamic.

So after we take into consideration ’25 and ’26, ought to we count on advertising and marketing to come back again down or would you count on to be rising income sufficiently to only have that price proportion decline naturally? So what I will say is that we’re actually making this model funding deliberately. We’re specializing in the spend on what’s working. We’re seeing the brand new prospects, we’re seeing these improved frequency traits, so we’re leaning in. And we consider that that is going to drive greater progress, paving the way in which for long-term profitability.

We’re a progress firm. So what we have accomplished is we have seemed throughout the advertising and marketing funnel and we’re taking concerted efforts to proper measurement our spend throughout higher and mid-funnel techniques. And since we do consider we shifted away from this over the previous 12 months or so. So I do assume what you may see is that that is going to drive progress, and it’ll drive profitability over the long term, however these are long term forms of investments.

And there is an attention-grabbing stat from a client panorama business perspective. Higher funnel advertising and marketing investments drive consciousness that result in prime quality natural visitors which converts 3 times greater than visitors, pushed straight from paid advertisements. This is a vital dynamic that we’re excited to lean heavier into. So we’re leveraging that spend to proceed to indicate up and interact our group.

In the end, that is going to equate to retaining our prospects and bringing extra healthcare professionals into the fold. And as we go into 2025 and 2026, we’ll replace you as we go.

Thanks.

Operator

Thanks, Lorraine. Our subsequent query comes from Ashley Owens with the corporate KeyBanc Capital Markets. Ashley, your line is now open.

Chandana Madaka — KeyBanc Capital Markets — Analyst

Hello. Thanks for taking my query. That is Chandana Madaka on for Ashley right now. So I simply sort of wished to ask on match initiatives.

Might we dig a bit deeper into the initiative behind that that started launching in April the place it has been rolled out already and the place you are planning to finish by October?

Trina Spear — Co-Founder and Chief Govt Officer

Positive, thanks for the query. So delivering constant match throughout our assortment is a non-negotiable. This has been one thing that is been underway for fairly a while, however with the ability to have your uniform match the identical method each time what you ordered six months in the past as a healthcare skilled. Perhaps you ordered the Catarina Prime and the YOLA pant, two of our best-selling objects, and also you come again six months later.

It has to suit precisely the identical so long as your physique did not change. So it is a actually essential initiative. And we consider this transition goes to assist enhance repeat frequency and retention. And we actually wish to be certain that we’re delivering one of the best expertise to our healthcare group always.

We count on stock, like I mentioned, to proceed to lower on a year-over-year foundation for the rest of the 12 months, even with the pull ahead of stock associated to the match transition. And as we monitor promoting traits, we will handle our stock ranges accordingly. However like I mentioned, we do really feel like we’re in a really wholesome place right now. It is why we had been ready to usher in all of this newness and innovation that we’re actually enthusiastic about.

Chandana Madaka — KeyBanc Capital Markets — Analyst

Superior. Thanks. After which, simply sort of following up on that stock piece. Might you present us with a refresh on perhaps your anticipated promotional cadence you are planning for this 12 months now that, you already know, it is at a extra normalized degree? So how are you fascinated about that?

Trina Spear — Co-Founder and Chief Govt Officer

We will proceed to be disciplined round our promotional cadence and we will proceed to actually make the most of promotions in a really celebratory method. Proper now it is Nurses Week which is our Tremendous Bowl. So that you see the provide that we have now on our web site and it is actually about celebrating our group and galvanizing the subsequent era to wish to turn out to be them. And so, we’re gonna be actually leaning into these moments and never shifting our cadence from what you have seen up to now and what you will notice 12 months over 12 months.

Chandana Madaka — KeyBanc Capital Markets — Analyst

Superior. Thanks.

Operator

Thanks, Ashley. Our subsequent query comes from Nathan Feather with the corporate Morgan Stanley. Nathan, your line just isn’t open.

Nathan Feather — Morgan Stanley — Analyst

Hey, everybody, thanks for taking the query. So you have run two pattern gross sales comparatively shut to one another at the very least relative to your historic cadence. I assume, you talked to the thought course of there, what sort of uplift it generated, after which do you count on the 1Q pattern sale you ran to drag ahead any demand from 2Q, just like the prior pattern sale on the again half of final 12 months. Thanks.

Trina Spear — Co-Founder and Chief Govt Officer

So we do a pattern sale yearly, and we do not look to comp interval over interval. So final 12 months it was in Q3, this 12 months it is in Q1. And it is actually about after we look to try this, when it is smart to have interaction our group with that kind of exclusivity. You are in a position to sort of become older kinds and older colours, and it is a actually thrilling time.

And in order that was about I do — I do not consider additionally simply given what we’re seeing the traits that you already know there may be gonna be a pull ahead into Q1 from Q2.

Nathan Feather — Morgan Stanley — Analyst

Nice. Thanks.

Operator

Thanks, Nathan. Our subsequent query comes from Matt Koranda with the corporate Roth MKM. Matt, your line is now open.

Matt Koranda — ROTH MKM — Analyst

Hey, thanks for taking the questions. Simply wished to circle in on the buying dynamics and the inflection that you simply noticed later within the quarter. So perhaps simply curious for those who can drill down on the place you assume the inflection is coming from. Is it coming from new prospects to the model? Is it coming from current energetic prospects which can be tightening their buy cycle? Or is it energetic prospects that principally went dormant for a time period post-pandemic? Simply any element round that and perhaps simply to unpack regionality if there may be any or — any subsegments amongst your healthcare professionals.

Trina Spear — Co-Founder and Chief Govt Officer

So we have actually seen that enchancment coming from the repeat frequency, proper? It is prospects, energetic prospects, it is prospects which have laps which can be coming again which can be so excited by the innovation and so excited by our storytelling. And in order that it actually does illustrate the ability of our plan, the plan that we have spoken about, bringing true innovation mixed with impactful storytelling and that working. We consider and we have all the time seen on this enterprise that repeat drives in, repeat prospects are strolling round their hospitals, strolling round their establishments, sporting FIGS, buying prospects for us. This phrase of mouth dynamic is tremendous highly effective.

There are densely populated establishments buying prospects for us. In order that repeat frequency continues, we’ll see that sort of a brand new sort of come behind it. And we have seen, you requested about geography, we have seen robust frequency and reactivation in each america, in addition to in our worldwide markets. And we’re seeing not solely simply with repeat when it comes to our energetic prospects, but in addition when it comes to quite a few different metrics throughout the enterprise.

Matt Koranda — ROTH MKM — Analyst

OK. That is useful. Thanks, Trina. After which, simply when it comes to the change to the margin steerage, I simply wished to guarantee that we’re all tremendous clear.

It sounded such as you mentioned gross margin for the total 12 months should not change so we’re nonetheless anticipating sort of flattish gross margin for the 12 months. So the entire incremental EBITDA margin reduce is basically coming from the advertising and marketing line?

Trina Spear — Co-Founder and Chief Govt Officer

That is appropriate. So gross margin comparatively flat 12 months over 12 months and the EBITDA replace is admittedly round us investing and doubling down on what’s working, and doubling down on participating our group in superior methods. We have now $259 million of money. We have now no debt.

This can be a extremely cash-flow-generative enterprise, and we’re investing in ourselves.

Matt Koranda — ROTH MKM — Analyst

Thanks. I will depart it there.

Operator

Thanks, Matt. Our subsequent query comes from Dana Telsey with the corporate Telsey Group. Dana, your line just isn’t open.

Dana Telsey — Telsey Advisory Group — Analyst

Hello, good afternoon everybody. Trina, as you consider the product combine shift that’s ongoing, what are you going to — what are you going from — how is the pricing on new product altering or adapting? And now, we’re in the course of Nurses Week, what are you seeing this 12 months that is completely different than final 12 months? Is there a choose up on momentum? Is it a product class that you simply’re seeing with that momentum enhancing? Thanks.

Trina Spear — Co-Founder and Chief Govt Officer

Thanks, Dana. Nice to talk with you once more. So I feel we got down to diversify the enterprise from a product standpoint, diversify by class, our outerwear, our under-scrubs, our compression socks, what are your professionals sporting to work, at work, from work, on shift, off shift, head to toe? We’re not only a scrubs firm anymore. And also you see it within the numbers.

Over 20% of this enterprise is every little thing outdoors of scrubs. And even inside scrubs, we have made large strides from an innovation standpoint, like I discussed, doubling as a contribution to the enterprise, our restricted version scrub ware. And so, lots of that does include greater AUR. In order that’s nice to see.

New innovation drives UPT as properly, which provides leverage, as you already know, throughout fee, success, and advertising and marketing. And whereas product margins at first are a bit decrease on paper, the order economics actually do offset that. And so, I feel, we’re projecting for the 12 months an AOV achieve from AUR and UPT like I simply mentioned. When it comes to Nurses Week, I feel, we’re off to a extremely robust begin.

It is actually thrilling to see the engagement. We really kicked off Nurses Week on the New York Inventory Change with our nurses on the rostrum with again to what we’re all about, celebrating this group in superior methods, in memorable methods, and getting the entire world behind them to see the work that they’re doing and have fun them and simply put them on a pedestal which is actually what we did. And I am so excited that we had that second and the way can we proceed to have interaction with them. It is gonna be an thrilling 12 months.

Dana Telsey — Telsey Advisory Group — Analyst

Any learnings from the retail retailer and when does Philadelphia open?

Trina Spear — Co-Founder and Chief Govt Officer

The retail retailer. The shop has been nice. 40% of our group that’s buying throughout the retailer are new prospects, and that is in our most penetrating market of Los Angeles, in order that’s nice to see. healthcare professionals are like all people else.

They wish to have interaction with manufacturers each on-line and off, and we’re seeing that in our Century Metropolis retailer. Philly is coming in late summer time which we’re tremendous enthusiastic about on Walnut Avenue. And it is a terrific area. It is a bigger format than Century Metropolis.

And we’re actually excited concerning the group area on the second ground the place we’re gonna be capable of have interaction with talking occasions and completely different activations. It is gonna be so superior. So I will ship you that invite, Dana, as a result of you have to come.

Dana Telsey — Telsey Advisory Group — Analyst

OK. Thanks very a lot and good to see the progress.

Trina Spear — Co-Founder and Chief Govt Officer

Thanks.

Operator

Thanks, Dana. Our subsequent query comes from Bob Drbul with the corporate Guggenheim. Bob, your line is now open.

Bob Drbul — Guggenheim Companions — Analyst

Hello, good afternoon, everybody. I assume, Trina, I used to be simply questioning for those who might discuss extra concerning the buyer just a little bit. You talked about pressures on the healthcare professionals final quarter, and I feel that impacted demand. Is it altering now? If it hasn’t modified, what do you actually assume is spurring among the demand? And I assume, the opposite piece of that is, do you assume the alternative cycle is bottoming?

Trina Spear — Co-Founder and Chief Govt Officer

Thanks, Bob. So we’re seeing indicators, like I mentioned, that repeat charges have bottomed and are actually rising and heading in a optimistic course. That is one thing we have talked about for some time, and so it is actually thrilling to see that. It is nonetheless early days, however these main indicators make us very hopeful concerning the well being of our client, concerning the well being of the healthcare skilled that’s beginning to flip a nook.

And extra usually, we have spoken about among the systemic points with healthcare professionals will stay targeted on fixing the structural points in healthcare, and it is why we battle so exhausting on advocacy for our group with our Superior People invoice. In order that’s actually one thing that we’re going to proceed to battle for. When it comes to the alternative cycle, we’re nowhere close to the normalization of repeat dynamics on this business. You noticed that repeat frequency, that alternative cycle, if you’ll, it sort of, it was undoubtedly normalized pre-COVID, pre-pandemic, it spiked throughout COVID, and we’re nonetheless in a little bit of a lull, however It is nice to see that that is bottomed.

Thanks, Bob.

Operator

Thanks, Bob. Our subsequent query comes from Brooke Roach with the corporate Goldman Sachs. Brooke, your line is now open.

Brooke Roach — Goldman Sachs — Analyst

Good afternoon, and thanks for taking our query. Trina, you have spoken to the inexperienced shoots that you’ve got been seeing within the non-scrub class, in addition to new restricted version product. Are you able to elaborate on the expansion charges and frequency traits that you simply’re seeing inside your core U.S. scrubs enterprise? And is the core scrub buyer participating extra at full worth, or has extra of this inexperienced shoot progress been pushed by key promotional moments?

Trina Spear — Co-Founder and Chief Govt Officer

So I feel what we have seen is with the innovation is that it isn’t solely driving you already know promote by way of in these kinds and in these classes, it is also driving the core. And it is two issues that we are saying right here at FIGS is Pinnacle drives core and repeat drives new. And in order that dynamic of launching new merchandise, new innovation that has actually been thrilling year-to-date is driving not solely engagement in these kinds and engagement in these classes, but in addition engagement within the core. In order that’s nice to see.

And core is sort of a lagging indicator to the promote throughs throughout the Pinnacle or throughout restricted version. When it comes to, sorry Brooke, what was your second piece of that query?

Brooke Roach — Goldman Sachs — Analyst

Simply whether or not or not that client is participating extra at full worth or if extra of those display shoots have been pushed by promotional moments.

Trina Spear — Co-Founder and Chief Govt Officer

We have not seen a lot shift 12 months over 12 months from the engagement throughout full worth versus promotional moments. So we proceed to be extremely disciplined and also you see it within the gross margin, extremely disciplined round our promotional cadence, extremely disciplined round that degree of promotion. And so, it is thrilling to see that engagement degree is not simply coming, you already know, throughout these moments.

Brooke Roach — Goldman Sachs — Analyst

Nice. After which, simply lastly for me, are you able to assist us break down the expansion expectation that you’ve between your worldwide and your U.S. enterprise for each 2Q and the total 12 months given the up to date steerage forecast?

Trina Spear — Co-Founder and Chief Govt Officer

Brooke, I’d love to offer it to you, however everybody’s telling me I am unable to. So we do not break that out, however worldwide continues to develop phenomenally properly. And I’d simply take out the responsibility reclass if you have a look at that worldwide progress to provide the full image of that. However we’re actually enthusiastic about not solely what we’re seeing internationally.

From a U.S. standpoint, lots of what we’re seeing when it comes to repeat frequency is that engagement round our storytelling and nice engagement round large model moments. And in order that’s why we’re persevering with to speculate. It truly is in that U.S.

buyer.

Brooke Roach — Goldman Sachs — Analyst

Nice. Thanks a lot. I will move it on.

Trina Spear — Co-Founder and Chief Govt Officer

Thanks, Brooke. Our subsequent query comes from John Kernan with the corporate TD Cowen. John, your line just isn’t open.

John Kernan — TD Cowen — Analyst

Good afternoon. Thanks for taking the query. Trina, you talked loads about TAM again throughout the IPO course of. I am questioning how your view of addressable markets advanced and the way your share is progressing as we get by way of 2024.

Trina Spear — Co-Founder and Chief Govt Officer

John, I knew the TAM query would come from you, however I am glad to see it. So we really feel actually good about our potential to proceed to penetrate the healthcare attire market. It is an $80 billion market globally. It is $12 billion in america.

And we’re doing over $0.5 billion in gross sales. There may be lots of working method forward of us. And also you see that within the worldwide progress, and also you see that truly within the groups progress, which we have not talked about but, however it’s actually thrilling to see that enterprise proceed to scale. After which, I do assume, and we have talked about this, we’re creating TAM.

Non-scrubs is basically principally TAM creation. So having that be over 20% of our enterprise is a superb signal that sure, there’s the scrubs market, however we’re innovating every single day. And I’d say a big portion of what we’re doing even inside scrubs just isn’t in that TAM. So we very not often discuss TAM right here as a result of innovation adjustments TAM, and that is what we’re trying to do.

John Kernan — TD Cowen — Analyst

Understood. Thanks. Kevin, I feel you mentioned the success investments this 12 months are 220-basis-points headwind, how do you get better that margin over time? What kind of high line progress does it want and what are the returns that you simply count on to generate off this funding? Thanks.

Trina Spear — Co-Founder and Chief Govt Officer

So John, all of that funding is transitory. So these 220 foundation factors is all of the transitory price of getting two amenities open similtaneously we transfer to our new facility. So that may all go away subsequent 12 months.

John Kernan — TD Cowen — Analyst

Bought it. All proper. Thanks.

Operator

Thanks, John. Our subsequent query comes from Angus Kelleher with the corporate Barclays. Angus, your line is now open.

Angus Kelleher — Barclays — Analyst

Hello. That is Angus on for Adrienne Yee. Thanks for taking my query. What are among the long-term alternatives on the promoting expense line on account of the success middle shift and alter in success associate? And at what level do you begin leveraging these? Is it a perform of time or do you want a specific amount of worldwide income to get there?

Trina Spear — Co-Founder and Chief Govt Officer

So we really feel actually good about shifting to our new facility. There are a selection of issues that that is going to assist us do to create a greater expertise for our prospects, greater reliability, and actually set us up from, to your level, to as we scale we will achieve leverage proper from this new facility. It is actually tech-enabled. There is a ton of robotics.

And so, as we transfer past our gross sales right now, we’re set as much as drive meaningfully a lot greater enterprise on this facility. From a global perspective, we have talked about our Q1 timing because it pertains to opening up a Canadian facility. And so, not solely is that this facility in and of itself one thing that we will achieve leverage from over time, it is also setting us as much as construct a world community of distribution. And so, that is an thrilling begin as we actually look to make it very straightforward to get your package deal.

You should not have to attend greater than two days to 3 days. So how can we try this on a world degree? That is setting us as much as actually be certain that it is quick, it is handy, it is dependable, and also you get the place it’s essential to go to your job and do it properly.

Angus Kelleher — Barclays — Analyst

Nice. Thanks. And I assume, simply secondly, curious for those who might discuss concerning the, and that is sort of a follow-up on Brooke’s query, curious for those who might discuss concerning the, and that is sort of a follow-up on Brooke’s query, curious for those who might discuss concerning the efficiency unfold between remainder of world and U.S. in 1Q given the remainder of the world progress was outpacing the U.S.

fairly meaningfully. So I assume, what’s working in these worldwide markets that perhaps is not resonating as properly within the U.S.? Thanks.

Trina Spear — Co-Founder and Chief Govt Officer

Positive. I imply, so it is actually completely different methods, proper? The remainder of the world we’re actually leaning into bringing on new healthcare professionals. There are 140 million healthcare professionals around the globe. And lots of of them, you already know, it was just like the U.S.

in that, that they had these saggy, boxy, ill-fitting scrubs and it was simply terrible. And so, actually first off getting them to know what to exist, coming into these markets and localizing. Localizing from a translation, talking their language from a foreign money standpoint, from a web site expertise standpoint, from merchandising the product that makes probably the most sense for them based mostly on the place they reside, actually understanding their holidays and the way they wish to have interaction with issues. And in order that’s been an enormous spotlight from a global perspective and one thing that we’re even nonetheless early days on.

I imply, there’s quite a few nations that we have not even absolutely translated into their language. So it is lots of alternative. From a U.S. perspective, we actually are inspired by what we have seen with our product launches, driving individuals again, with our campaigns and our storytelling, participating this group in deeper methods.

And there is a complete a part of this nation that does not, similar to worldwide, would not but find out about FIGS. And so, how are we bringing new healthcare professionals into the FIGS household, is a large focus for us. However we consider that the model, you already know, large tentpole model moments is admittedly how we will get that consciousness each within the U.S. and globally coupled with localizing internationally.

That is our technique.

Angus Kelleher — Barclays — Analyst

Thanks.

Operator

Thanks, Angus. There aren’t any extra questions ready right now. I want to move the convention over to Trina Spear for closing remarks.

Trina Spear — Co-Founder and Chief Govt Officer

Thanks for becoming a member of us. This can be a nice talking with you all and look ahead to talking to you subsequent quarter.

Operator

[Operator signoff]

Period: 0 minutes

Name members:

Jean Fontana — Investor Relations

Trina Spear — Co-Founder and Chief Govt Officer

Kevin Fosty — Interim Chief Monetary Officer

Brian Nagel — Oppenheimer and Firm — Analyst

Rick Patel — Raymond James — Analyst

Lorraine Hutchinson — Financial institution of America Merrill Lynch — Analyst

Chandana Madaka — KeyBanc Capital Markets — Analyst

Nathan Feather — Morgan Stanley — Analyst

Matt Koranda — ROTH MKM — Analyst

Dana Telsey — Telsey Advisory Group — Analyst

Bob Drbul — Guggenheim Companions — Analyst

Brooke Roach — Goldman Sachs — Analyst

John Kernan — TD Cowen — Analyst

Angus Kelleher — Barclays — Analyst

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