Figs valuation

REVIEW

• Sales are growing and the business is reinvesting in its operations. Has decreased its current liabilities to 14% of total assets. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk.
• Is seeing its revenue slow due to economic conditions, do not believe this is a concern in the medium term, as interest in the brand grows.
• Margin improvement underpinned by operating cost leverage, with its DTC and e-commerce focus allowing the business a strong runway to attractive margins.
• The company, on an absolute basis, is still growing well. Further, it has several growth levers, such as expanding its product range, entering new markets, and leaning into its “TEAMS” offering.
• Management has created strong foundations for the company, with its DTC and e-commerce focus, as well as varying activities to increase the awareness of its brand. Google data implies FIGS is at the peak of its interest, with an exponential upward trajectory.
• FIGS concentrates on a specific niche within the healthcare industry – medical professionals. The company sells primary apparel, as well as related products. By catering to the unique needs and preferences of this market segment, FIGS tailors its products to precisely match their requirements. This has allowed the company to develop a brand synonymous with this segment, improving its competitive positioning.
• FIGS is renowned for producing top-quality, fashionable, and comfortable medical apparel. Their scrubs, lab coats, and other healthcare attire not only prioritize functionality but also incorporate a sense of fashion. This blend of quality and style has cultivated a dedicated customer base and allowed the business to price at a premium, despite the utilitarian nature of its product.
• FIGS has invested substantially in cultivating a robust brand identity. Their marketing campaigns emphasize the contemporary and stylish aspects of their medical apparel, challenging the conventional and outdated perception of healthcare uniforms.OPORTUNITIES
• Global Reach - FIGS has already expanded beyond the United States, with material growth potential through new geographies. The company still has translations to create and has scope for localized growth strategies.
• Innovative Design and Technology - FIGS has begun developing innovative features in its products, expanding beyond just aesthetics, such as moisture-wicking and antimicrobial fabrics. Practicality developments have the potential to enhance the company’s growth trajectory if it can satisfy key issues, such as hygiene. Further, this reduces the degree of FIGS’s value proposition that comes from marketing.
• Product Line Expansion - While FIGS began with scrubs, they have diversified their product line to include medical accessories, compression socks, and even loungewear. Further diversification will allow FIGS to capture a larger share of their target market's spending. New products could include footwear.
• Data-Driven Strategy - FIGS utilizes data analytics to gain insights into customer behavior and preferences. This data-driven approach informs its product development and marketing strategies. We reiterate the data emphasis due to the continued difficulty the company will face with penetrating this industry.
• TEAMS - FIGS allows “teams” to bulk-purchase products (50+ sets/100 items), seeking to tap into the collegiate culture of healthcare by encouraging employers to invest in their teams. This is a smart strategy in our view, as the marketing efforts can continue to be toward the healthcare professionals, hoping they will then lobby for a FIGS order.
• Retail - FIGS opened its first store during Q3’23 in Los Angeles (Westfield), seeking to provide a tailored experience and to further develop its relationship with (potential) customers. Although we do not want to see a full roll-out of stores, this is a smart decision. It is critical that products can be seen in person, particularly for those who may make substantial purchases (TEAMS).RISKS
• Execution. FIGS is in a precarious position where it has experienced a monumental decline in share price following a weakness in performance (margin decline post-pandemic and a slowdown in growth now). This makes investors more skeptical about the business and leaves less room for error. Management must maintain its current growth trajectory into the medium-term (~8%) while consistently improving margins (EBITDA-M target of ~15%).
• FX. As the company expands overseas, it faces FX risk in translating its earnings to dollars.
• Cyclicality. FIGS’ focus on premium and an image of superiority makes the business more susceptible to economic weakness, particularly because much of its target market is government employees.
• Marketing over function. Its apparel’s image is inherently built on perception/marketing, which can be a weak moat long-term compared to such factors as function. This is why we would like to see innovation drive product improvement.