1 Main Capital Partners - Figs, Inc: Impressive Growth Driven By A Deeply Loyal Community

May 14, 2022 10:04 AM ETFIGS, Inc. (FIGS)LULU, MS, MS.PA, MS.PE, MS.PF, MS.PI, MS.PK, MS.PL, MS.PO7 Comments1 Like


  • Figs, Inc. founded by its co-CEO's in 2013 and grew revenues to $100 million by 2019 and $420 million by 2021.
  • This impressive growth has been driven by a deeply loyal community of nearly 2 million active customers.
  • Despite this impressive growth, management believes that FIGS is still in early innings.
  • As the business scales, I believe that EBIT margins could eventually exceed 30%, meaning FIGS stock currently trades at a low 20's multiple of normalized earnings.

Doctors and nurses celebrating senior man leaving the hospital after recovery - wearing protective face mask

FG Trade/E+ via Getty Images

The following segment was excerpted from this fund letter.

Figs Inc (NYSE:FIGS)

Figs is a direct-to-consumer healthcare apparel company that designs and sells premium scrubs for doctors and nurses. The company is doing to the healthcare apparel market what Lululemon (LULU) did to the athleisure market: branding a previously unbranded industry and de-commoditizing a previously commoditized product. The company was founded by its co-CEO's in 2013 and grew revenues to $100 million by 2019 and $420 million by 2021.

This impressive growth has been driven by a deeply loyal community of nearly 2 million active customers, many of whom will stick around for the entirety of their careers, in many cases spanning 30-40 years. In fact, almost 70% of 2021 revenues came from repeat customers, up from 60% in 2020.

Despite this impressive growth, management believes that FIGS is still in early innings. According to Morgan Stanley (MS), there are approximately 16 million healthcare professionals in the US that realistically wear scrubs, which is a smaller subset of the 20 million healthcare professionals in the country, but significantly more than the company's current customer count.

Better yet, there are around 120 million health care professionals and medical students internationally, many of which are just now being offered the option to buy FIGS. The company just recently began selling its products in Canada, Australia, and the UK.

It is also important to note that 75% of FIGS's sales are to people who are 45 years old or below, meaning that the company will benefit over time as older doctors and nurses retire and are replaced with new and younger counterparts that are more interested in wearing premium scrubs.

Of course, not all these professionals are able or willing to buy premium scrubs, just like not all yogis are able or willing to spend hundreds of dollars on athleisure, but clearly there are many who are. Awesome Humans, as the company refers to them, are the target professionals who do choose to wear FIGS branded scrubs to help them look, feel, and perform at their best 24/7/365, by equipping them with apparel that has an unmatched combination of comfort, durability, function, and style.

The company uses creative marketing tactics such as its Ambassador Program, which consists of hundreds of healthcare professionals from around the world who are an extension of the FIGS team and are evangelists for the brand. Customers are so passionate about the brand, that the company routinely sees new "drops" of innovative limited-edition styles and color quickly sell out soon after becoming available.

These dynamics have allowed FIGS to scale efficiently, with an acquisition cost of less than $100 per new customer, compared to average annual contribution of around $140 per customer. Said another way, the company recoups its CAC in just one year, on average.

On top of the potential to grow its active customer count, there is also plenty of room to expand sales within the existing base. Current customers typically buy from FIGS approximately twice per year and spend around $100 each time. Healthcare workers tend to buy 5-6 sets of scrubs per year, but also buy lots of non-scrub apparel and accessories such as underscrubs, lab coats, activewear, outerwear, and compressions socks. The company is in early innings of its push to capitalize on the opportunity to sell a wider variety of products to its loyal customers.

In fact, FIGS is being very methodical in its attempt to take wallet share within its existing base of Awesome Humans. The www.wearfigs.com website and app account for 98% of sales, allowing the company to control the customer experience, collect data about customers and engage with them in a way that unbranded competition cannot. The company leverages data to improve its operations and decision- making in key areas like product innovation, inventory analytics and marketing efforts.

Given the company's premium price point, highly efficient marketing spend, and the nature of its DTC model which eliminates the need to share margins with wholesale and retail partners, FIGS has been able to generate mid-20s EBIT margins and significant free cash flow in the last two years while growing revenue at a 2-year CAGR of 95%. There are very few companies out there growing at these levels, let alone doing so while generating these types of margins and positive FCF.

So, what's the catch and why is it cheap enough for me to get excited about? Simply put, the company's shares got caught up in the recent unwind of high growth / high multiple stocks which have been aggressively sold by market participants since last November. After coming public in mid-2021 at $22 per share and appreciating to above $50 per share shortly thereafter, FIGS's stock has been on a straight march downward, hitting a low of $13 in March.

In terms of its valuation, FIGS has approximately 200 million shares outstanding on a fully diluted basis and sits on around $200 million of net cash, giving it a fully diluted enterprise value of $3 billion. This year, it is expecting to generate sales and EBIT of over $550 million and $100 million, respectively. As the business scales, I believe that EBIT margins could eventually exceed 30%, meaning the stock currently trades at a low 20's multiple of normalized earnings. This is far too cheap for a business that has an open-ended growth runway like FIGS has.

I am excited to see what the future has in store for the company.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Single stock ideas excerpted from fund letters published by Seeking Alpha.

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