Shares of Figs (FIGS, Financial), the largest direct-to-consumer supplier of scrubs to the medical industry, declined 18.4% in the quarter and hurt performance by 73 bps. The decline was due to customers pulling back on their frequency of purchases as they are being hurt by the current inflationary macro environment. Management now expects to have an increased promotional environment to clear excess inventory, although they indicated it should be similar to pre-COVID levels. However, the company continues to innovate offering new styles, colors, and sizes. It continues to add active customers despite the challenging macro environment with record customer reactivations. Non-scrubs continue to grow at a brisk pace and should be accretive to margins as this product line scales. The company also continues to expand awareness, by leveraging digital and out-of-home marketing and remains profitable on a first order basis. Its international business is in its very early days with strong results so far in the U.K. and Canada. We believe its direct-to-consumer model, strong brand, and superior product remain durable competitive advantages and should help the company take share as it continues to penetrate the $80 billion global health care apparel market. We continue to believe the company could double its revenue over the next three years and almost triple its EBITDA.
Figs Inc. is a leading direct-to-consumer health care apparel brand. Sharesdeclined following disappointing guidance for the remainder of the year. While Figs remains the favorite brand for many health care professionals, the company now expects growth to be slower than it had previously forecast, as its customers are cutting back on purchases given the challenging macroeconomic environment. We retain conviction due to Figs’ strong brand, superior product and merchandising, and direct-to-consumer business model.
From Ron Baron (Trades, Portfolio)'s Baron Focused Fund fourth-quarter 2022 letter.
