Rising Tariffs And Supply Challenges Will Erode Premium Margins

Key Takeaways

• Rising competition, economic pressures, and shifting consumer preferences are expected to weaken FIGS’ pricing power and stall revenue growth.
  
• Escalating supply chain costs and regulatory demands will compress margins, increase expenses, and erode FIGS’ long-term profitability.
  
• International expansion, product diversification, and a strong omni-channel strategy position FIGS for resilient long-term growth despite near-term cost pressures and macroeconomic challenges.

Catalysts

Together with its subsidiary, FIGS Canada, Inc., operates as a direct-to-consumer healthcare apparel and lifestyle company in the United States and internationally.

• The persistent shift toward value-focused consumer behavior, exacerbated by ongoing economic uncertainty and inflation, is expected to undermine pricing power and premium segment growth for FIGS, leading to revenue stagnation or even declines as customers increasingly prioritize affordability over brand-driven differentiation.
  
• The acceleration of global supply chain deglobalization, heightened by rising tariffs and persistent labor shortages, will continue to drive up input and operational costs for FIGS, resulting in margin compression and downward pressure on overall earnings as mitigation efforts struggle to offset these structural challenges over the long term.
  
• Customer acquisition and retention are likely to grow costlier and less effective as digital advertising budgets rise and privacy regulations tighten, materially increasing selling and marketing expenses and diminishing the company’s ability to efficiently grow its active customer base, which will negatively affect long-term operating margins and profitability.
  
• Intensifying competition from new entrants, established brands, and private label products in the medical apparel category is expected to cause growing price pressure and market share fragmentation, stymieing revenue growth and reducing FIGS’ ability to maintain premium pricing as commoditization accelerates within the industry.
  
• The continued push by large health systems toward cost-cutting and bulk contract purchasing, combined with growing regulatory requirements for sustainability and antimicrobial certifications, will raise compliance and procurement barriers for premium uniform providers like FIGS, constraining volumes and elevating overhead, thereby eroding future revenues and net margins.

FIGS Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on FIGS compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming FIGS's revenue will grow by 2.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.2% today to 3.4% in 3 years time.
• The bearish analysts expect earnings to reach $20.4 million (and earnings per share of $0.12) by about July 2028, up from $1.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 34.3x on those 2028 earnings, down from 898.6x today. This future PE is greater than the current PE for the US Luxury industry at 16.3x.
• Analysts expect the number of shares outstanding to decline by 4.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

FIGS Future Earnings Per Share Growth

Risks

• The aging global population and continued growth in healthcare jobs, including strong labor demand growth in the healthcare sector—nearly three times the overall job market—are expanding the target customer base for FIGS, which can support revenue growth over the long term.
  
• FIGS is executing on a robust international expansion strategy, with ongoing localization, new market entries in Japan and South Korea, and continued double-digit growth in regions like Mexico, Europe, and the Middle East, which can further increase long-term revenue and earnings.
  
• The company’s diversification beyond scrubs into adjacent categories such as footwear, underscrubs, outerwear, and B2B “TEAMS” offerings enhances average order values and provides a pathway for margin expansion and greater revenue per customer over time.
  
• FIGS maintains a strong digital and omnichannel presence, with initiatives like viral marketing campaigns, effective customer reactivation, and increasing omnichannel purchasing rates (30% of new store customers convert to omnichannel), which enhances customer retention and supports long-term net margins and profitability.
  
• Despite near-term cost pressures from tariffs and macro uncertainty, FIGS’ fortress balance sheet, debt-free capital structure, and disciplined cost mitigation strategies put it in a position to invest offensively in growth levers, preserve cash flow, and take market share during volatility, supporting resilient long-term earnings.

Valuation

• The assumed bearish price target for FIGS is $4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of FIGS's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.5, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $598.6 million, earnings will come to $20.4 million, and it would be trading on a PE ratio of 34.3x, assuming you use a discount rate of 8.0%.
• Given the current share price of $6.54, the bearish analyst price target of $4.0 is 63.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.