FIGS (FIGS) Q1 2025: Tariffs Cut 150bps from Margin, Supply Chain Flex Shields Growth Levers
FIGS delivered a resilient Q1, with revenue growth and margin outperformance despite new tariff headwinds and a dynamic consumer backdrop. Strategic investments in international markets, B2B teams, and retail are progressing, while management leans on a nimble supply chain to offset cost pressures. Guidance holds steady, but margin visibility narrows as tariff impacts phase in through the year.
Summary
- Margin Compression from Tariffs: New 10% tariffs are cutting into gross margin, forcing aggressive cost mitigation and scenario planning.
- Growth Levers Stay Funded: Investments in international expansion, B2B teams, and community hubs remain priorities despite cost headwinds.
- Outlook Hinges on Execution: Tariff mitigation, supply chain agility, and disciplined expense control will determine margin outcomes in H2.
Performance Analysis
FIGS posted 5% year-over-year revenue growth to $124.9 million, exceeding expectations and driven by both core U.S. and international markets. The U.S. business returned to positive growth, with repeat customer strength and active customers up 4% to 2.7 million. Average order value (AOV) hit a record $119, up 3%, reflecting a higher mix of full-price sales and improved product mix. International revenue grew 16%, with notable gains in Mexico, Europe, and the Middle East, though growth moderated from Q4 due to last year’s duty reclassification benefit and a shift in promotional cadence.
Gross margin contracted 130 basis points year-over-year to 67.6%, pressured by higher freight costs and mix shift within the scrubware category. Adjusted EBITDA margin landed at 7.2%, above the guided 5.5% to 6%, but down from 10.9% a year ago as FIGS prioritized reinvestment in growth drivers. Selling expenses rose to 26.2% of revenue, reflecting ongoing fulfillment center ramp-up and higher outbound shipping costs. Inventory management remains disciplined, with inventory up just 1% year-over-year and down 27% from Q1 2023 peaks, but management flagged a likely inventory build in Q2 to navigate trade uncertainty.
- Full-Price Sales Drive AOV: Higher average unit retail and reduced promotions fueled record AOV, signaling brand strength and pricing power.
- International Diversification: Overseas markets contributed 16% growth and now represent 15% of revenue, with new launches in Japan and South Korea on deck.
- Margin Headwinds Mount: Tariffs and freight inflation are eroding gross margin, with incremental impacts deferred to H2 as inventory cycles through.
FIGS’ financial flexibility remains a key asset, with $251 million in cash and no debt, allowing continued investment even as macro and regulatory risks rise.
Executive Commentary
"Our conviction in these investments is unchanged, given the opportunities we see to accelerate growth and drive greater contributions in key areas like international, our B2B teams business, and retail… We believe our cash balance, cash flow generation and debt-free structure give us the ability to stand offense with our strategies while also solidifying our financial position against the macro uncertainties that have grown across the overall market."
Trina Spear, Co-founder and Chief Executive Officer
"Our full year 2025 net revenue outlook is unchanged… For our full year adjusted EBITDA outlook, we are now projecting a range of 7.5% to 8.5%. Our outlook assumes the current 10% baseline and reciprocal tariffs on China remain in effect for the balance of the year without the currently paused reciprocal tariffs being added in. The low end of our range includes an unmitigated tariff impact of approximately 150 basis points. The high end reflects strong execution of our cost mitigation strategies and thus includes a reduced tariff impact of approximately 100 basis points."
Sarah Altred, Chief Financial Officer
Strategic Positioning
1. Supply Chain Flexibility as Competitive Moat
FIGS’ business model is built on replenishment-driven, high-volume, low-SKU scrubware, enabling rapid production shifts and cross-sourcing capabilities. The majority of production is in Jordan and Vietnam, with only minimal exposure to China, providing insulation from the full impact of new U.S.-China tariffs. Management is leveraging this flexibility to mitigate cost increases, canceling or resourcing orders and negotiating with suppliers to offset tariff-related inflation.
2. Relentless Focus on Brand and Customer Experience
Brand leadership remains central, with investments in product innovation, community engagement, and omnichannel presence. Campaigns like “Where Do You Wear FIGS?” and viral content during Nurses Week are deepening emotional connection with healthcare professionals. Physical retail hubs are delivering high rates of new customer acquisition and omnichannel engagement, while B2B teams are capturing new institutional demand.
3. International Expansion as Growth Engine
International markets are underpenetrated, making up just 15% of revenue despite 80% of global healthcare professionals residing outside the U.S. FIGS is localizing product and marketing, launching in Japan and South Korea, and tailoring campaigns to regional cultures. Management sees global expansion as a multi-year lever for both top-line growth and margin diversification.
4. Disciplined Capital Allocation Amidst Macro Uncertainty
FIGS is balancing growth investments with cost discipline, maintaining a fortress balance sheet while ramping investment in core levers. Share buybacks continue opportunistically, but management is prioritizing liquidity and expense control until macro and trade policy clarity improves.
Key Considerations
This quarter’s results highlight FIGS’ ability to out-execute in a volatile environment, but also underscore the complexity of managing cost inflation and macro uncertainty while funding growth.
Key Considerations:
- Tariff Impact on Margins: 10% baseline tariffs are expected to cut 100-150bps from EBITDA margin, with full effects back-half weighted as inventory cycles through.
- Pricing Power vs. Customer Sensitivity: Management is reluctant to raise prices, citing healthcare professional wage constraints and a desire for price consistency, leaving cost mitigation as the first defense.
- Promotional Cadence Shift: Reduced promotions are boosting AOV and margin but may dampen top-line growth in H2 as comps become tougher and consumer demand softens.
- Growth Investment Intact: Despite margin compression, FIGS is not pulling back on international, B2B, or retail investments, signaling confidence in long-term opportunity.
Risks
Tariff escalation and global trade policy volatility introduce significant cost risk, with limited visibility on duration or additional rounds. Consumer demand normalization is still in early stages, and macroeconomic or healthcare sector shocks could pressure replenishment cycles. Reluctance to take price may limit margin recovery if mitigation falls short, while international expansion exposes FIGS to new regulatory and operational risks.
Forward Outlook
For Q2 2025, FIGS guided to:
- Flat year-over-year net revenue growth
- Gross margin in line with prior year, with tariff impacts ramping in H2
For full-year 2025, management maintained guidance:
- Net revenues down low single digits year-over-year
- Adjusted EBITDA margin of 7.5% to 8.5%, reflecting 100-150bps tariff impact
Management emphasized that tariff effects will phase in gradually, with H2 margin more exposed. Cost mitigation, supply chain agility, and disciplined expense management are critical to hitting the upper end of guidance.
- Tariff mitigation is ongoing, with no pricing action assumed in outlook
- Growth investments in international, teams, and retail remain funded
Takeaways
FIGS is navigating a challenging macro and regulatory environment with operational agility and a clear focus on its core growth levers.
- Tariffs Are the Central Margin Variable: Execution on supply chain and cost levers will determine whether FIGS sustains margin or absorbs further compression in H2.
- Brand Strength and Customer Attachment: Record AOV and reactivation rates show FIGS’ differentiated position, but consumer price sensitivity may limit future pricing power.
- Watch for Execution in International and B2B: New market launches and the scaling of teams business are critical to offsetting U.S. market normalization and maintaining growth momentum.
Conclusion
FIGS’ Q1 results validate its resilient business model and brand equity, but the year ahead will test its ability to absorb cost shocks and execute on growth initiatives without sacrificing financial discipline. Investors should monitor tariff mitigation progress, international traction, and any signs of consumer or healthcare sector slowdown.
Industry Read-Through
The apparel and healthcare uniform sectors face mounting cost pressure from global trade policy shifts, with tariffs compressing margins and forcing supply chain reevaluation. FIGS’ ability to maintain growth investment while absorbing cost shocks spotlights the value of a nimble, replenishment-driven model and strong brand affinity. For industry peers, the quarter underscores the risks of heavy China exposure, limited pricing power, and overreliance on promotions for growth. The evolving landscape favors players with supply chain flexibility, disciplined capital allocation, and a differentiated customer proposition.