Figs Stock

Okay. Good afternoon or good morning. I guess it's still morning, maybe moving into afternoon. I always like -- this is my favorite part of kind of having companies come to the conference doing the fireside chat. I'm Adrienne Yih. I am the Barclays Specialty Retail Apparel and Footwear Analyst, and it is my extreme pleasure to welcome Trina Spear, Co-Founder and CEO of FIGS and Sarah Oughtred, CFO.

I think it's always really important to understand the management backgrounds and bios. And so I'll start with Trina. So Trina co-founded FIGS in 2013 with Heather Hasson. She's led the company from an entrepreneurial disruptor in healthcare apparel through its 2021 IPO and today into one of the most recognized and trusted brands serving healthcare professionals globally. Under her leadership, FIGS has built a unique combination of product innovation, community engagement, and brand affinity that has helped redefine an entire category. Sarah joined FIGS in 2024 as Chief Financial Officer after a 17-year career at Lululemon and has been instrumental in scaling the company's financial discipline and profitability while helping support growth initiatives across customer acquisition, international expansion, enterprise partnerships, and category diversification.

So I've always found FIGS to be one of the more fascinating stories in retail, because on the surface, investors view it as a scrubs company. But when you dig deeper, this is really a discussion about building a category-defining brand, creating a highly engaged professional community, expanding wallet share with a loyal customer base, and building a platform serving healthcare professionals around the world. So with that introduction, before we get into FIGS, I always like to set sort of the macro backdrop.

And so let's talk about, Trina, how would you characterize the health of the U.S. consumer today relative to your guidance at the beginning of the year, six months ago? What's getting better, what's getting worse, and what do you think investors may be misunderstanding about the consumer, specifically your consumer?

Well, thank you so much, Adrienne. What a pleasure. What an intro. That was amazing. It's so exciting to be here, and thank you for taking the time. Thank you for all being here today. Yes, so I think we're in an interesting space, right? We don't serve the average consumer. Healthcare professionals are the most incredible people on the planet. They're saving lives, they're helping patients, and they're curing diseases. And I think one of the biggest things with our consumer is that they all have jobs.

All of them are employed as doctors and nurses in healthcare institutions around the planet. And healthcare jobs are the fastest growing job segment of any other job segment in the world. And so that's a huge tailwind as we think about the space in which we operate and who we're serving. You know, if you look over the past year, 550,000 of the 600,000 job gains were healthcare jobs and social assistance. So thinking about, you know, we're in this massive industry, 140 million healthcare professionals around the world. They are growing faster than any other job segments. And, you know, wages are stable, right? This is an incredibly stable profession. And healthcare professionals are the backbone of any functioning society.

So when we think about who we're serving, the industry that we're in, the setting that they're operating in, it is truly unique. This isn't a -- and the other piece of it is that it's non-discretionary, right? Healthcare professionals need their uniform to go to work and do their job. It's a mandated industry. And so what we do at FIGS is we are providing a product to healthcare professionals so that they can look good and feel good and perform at their best. And that, I think, is truly unique. And to your question about the guide earlier this year versus today, I think, you know, we've just seen a continued acceleration, right, starting in actually Q4 of last year where plus 25% growth the last three quarters and incredibly proud of that and doing that in an incredible -- in a profitable fashion. And so much, much more to do and much, much more to, in terms of how we're going to show up and serve this community. It's exciting to be in the position that we're in today and to continue to execute on all of what's in front of us.

Perfect. Great. So Sarah, I'm going to turn to you about the model itself. FIGS is primarily e-commerce, and so you get a lot of data, right, along with kind of to to get help you understand the consumer backdrop. Traffic's a big -- so can you talk to us about, kind of, those three quarters that you've actually been accelerating top line growth? What have you been seeing in terms of traffic and more importantly conversion at full price?

So we've been growing the business. We've been accelerating that growth rate, and a big piece of that is from higher traffic. We've seen great efforts from all over our marketing channels that are driving that traffic, and still maintaining strong conversion. And that strong conversion is really a function of the product offering. And that continuing to improve from all the pieces that we've been doing to continue to innovate, continue to invest in the layering system. So seeing really strong results that's driving all our orders and really contributing to that top line growth.

Great. And let me just put that into perspective. We just came out of a second quarter earning season. What you're describing here, 20% top line growth, profitability, strong gross margins, conversion and traffic up, is actually rare, very rare in this current environment. I think that's why we get so many questions about, is the consumer healthy? Your consumer is healthy. And I think that speaks volumes to what I'm going to talk about next. So the moat, right? What makes your business different? Every great company has a moat. You and I talked about this at the IPO at great length. I think you've proven it. So when you think about FIGS today, what is in essence, the true moat?

Yes. I think there are a number of moats, and I know you said one, but I'm going to say two. Okay, so I think product is our moat, right? It's our North Star. And we don't think about product as in, just making something, right? It's really about creating a product that works for a community in an environment that they're in. And we start at the yarn level. So we became famous for our FIONx fabrication. This is a fabric that is antimicrobial and wrinkle resistant and stain repellent and has four-way stretch and really works in the environments that healthcare professionals are in.

Having enough storage and pocketing for your keys and your stethoscope and your alcohol swabs and all the things you're carrying around as a healthcare professional is super important and really kind of combining these two worlds around technical fabric and comfort and really bringing those together in for a community that didn't have it and so you know product and continue to innovate not just in scrub wear but across the layering system Sarah mentioned it under scrubs outerwear compression socks we have a footwear collab with New Balance, like all of that is really important so that we can serve all the different needs of healthcare professionals both on shift and off shift head to toe.

I would say the moat that is that is harder to replicate, but once again, no one's been able to rip off our fabric, but the moat that's harder to replicate is how we've built a community. What we've done for this industry is we've branded an unbranded industry, we've de-commodified what many believed was a commodity product, but the thing that I think we're most proud of and something that we really have honed in on, is around how we've built a community around a profession.

Okay, this is a die-hard fanatical community that loves FIGS and we are obsessed with them and love them as much as they love us. This is a community of people that have dedicated their lives to serving everybody else. And that job is hard. And so when we think about how we show up for them in our campaigns, in our -- showcasing the best of them back to them, whether that's a billboard in Times Square, a film on Instagram and TikTok, or an activation we're doing next to their hospital, we need to show up really truly understanding them and getting what they do and how they do and having their back. And that's something that is very hard to replicate.

And the piece around that, we have a whole advocacy group fighting for healthcare professionals in D.C. We're giving back scrubs, giving scrubs around the world to healthcare professionals in need. And so that's a big part of what we do. There's so many things on the community front that we do with our now 600 global ambassadors that are exclusive to our brand that really helps them, they are driving the brand as much as we're working with them to continue to build everything that we're doing. So it's super exciting.

Now, I really like the point that you made because just outside, we were talking about new competitors entering your space. And I think what they lack is they can make the product, they can knock off your designs, but what they can't do is build this longstanding community. So I very much appreciate that. I guess it goes into to my next question. So some companies sell products and others sell symbols of identity. So healthcare professionals obviously have an emotional connection to FIGS that feels very uncommon. Other than the community, how else do you maintain that connection with them?

Yeah, I mean, and I think that's what we've really done, to your point. We've built an authentic brand for the past 14, 15 years. And these are real relationships, one-on-one relationships. And, you know, we've been able to scale that. But that feeling that this company understands me and knows me is super important. So we do it in our, we do it with our films, we do it with our, you know, like really deep connections with our ambassador community who are the most influential voices in medicine. And then we do it with our, with our advocacy.

And so one of the things that we put forth is our Healthcare as Human Act, which we're fighting for a $6,000 tax credit. I mean, you get a tax credit for like having an EV car, you get a tax credit for like having certain windows in your house, you get a tax credit for having children, but what about saving lives? What about all the work that healthcare professionals do? And so $6,000 a year is what we're fighting for.

We've also partnered with the Dr. Lorna Breen Foundation on mental health support. You know, coming out of COVID was incredibly impactful for our community in terms of PTSD and everything that they faced. And so there was like a question on the form when you were joining a hospital that said, like, have you ever had mental health support and that could be used against you if you check that box. So we got, I think, about half the states in the U.S., we got that question off the form. I mean, if you're an elite athlete, you have a coach. Why is it as a healthcare professional you can't have a therapist? That seems crazy.

Okay, and then, you know, a whole host of other things around pay, safety, training, support in your workplace. And so our community knows that we're doing this work, and it's super rare. Like some of the things that we're doing, no one even thinks about. They don't understand because they're not direct to consumer. They don't understand the lives and the experience of being a healthcare professional and what's needed to do that job. We do because of those relationships and then we're able to take action and build out teams to go after this and really make that experience better which is our goal.

That's great, which then brings me to the brand awareness and the return on all these good things. We're sitting here today. We're broadcasting out to the investment community, and we all know these things. But it's hard to get that message out to 3.1 million active customers. So Sarah, can you talk about sort of like where you are in that customer acquisition journey? You know, a lot is always talked about ROAS, return on ad spend, how much more effective that is as you build this sort of install base, so to speak. And what have you learned about the lifetime value of your most engaged customers?

Sure. So our active customer base is 3.1 million. We grew at 13% in the quarter. We've been accelerating the growth rate of that active customer base. And that's really being driven by not only acquiring new customers, but seeing really favorable returning customer metrics. There's over 140 million healthcare professionals worldwide, and so if you compare our 3.1 million to that, there's a massive runway for us to continue to go after improving our active customer base. So we look at the longer term growth drivers as one component really being that active customer base and continuing to increase it, as well as continuing to grow revenue per customer.

Your question around marketing. So marketing has been successful for us to continue to grow that active customer base. The journey with marketing really has evolved from a pure bottom of funnel to really building out, adding on upper funnel that's helping to improve our awareness, helping to share the brand message, helping to share all about product education. And we've also then shifted to adding in the middle layer. So we've really evolved from bottom of funnel to full funnel marketing. And we've done that with a very similar cost structure over time. So we've seen efficiencies gained through bottom of funnel and we've reinvested that into the business to really build out that full funnel. And so we've got this really great marketing flywheel that is really performing for us. We see continued opportunity with it, and we'll continue to use that to go after building out that active customer base.

I mean, it does seem like the step up in advertising, you know, some people are a little bit a little bit upset that it pressured the SG&A, but it really feels like we're now seeing the aftermath of that with the acceleration in the um the customer acquisition. So, with that in mind, what gives you the confidence that recent acceleration in this customer growth is sustainable and not simply the kind of like impact of some higher brand advertising in the earlier part of the year?

Sure, I mean, I think how we look at the overall business in terms of what's been driving the growth, not only within the active customer base, but really throughout, is that it's broad-based. It's not just one thing that we've turned on. We've got a really powerful ecosystem that's working for us and driving the results. We're seeing it across our geographies, our product, our different channels. And so it's the whole system that's working for us and driving it, and that tells us that there is sustainability behind it.

We've made investments into the business that have improved our results, and we're only at the beginning here. So we have lots of other initiatives that are still to come. And so we know that there's additional levers we can continue to pull, additional investments that we can continue to make to continue that growth into the future.

Can you share any brand awareness metrics with us, kind of a year ago or before you started the big push to the top of the funnel?

Sure. So overall, the tracking that we have around brand awareness, suggests that it is quite low. And so we've seen continued improvement in all of those metrics. So unaided awareness, awareness, preference usage, and year-to-date we've seen notable improvements. And so that's been really great to show that the efforts that we are doing are working. We do think we have a big runway, you know, so there's a lot of people that are not aware of FIGS and that's still within the U.S. So there's still awareness and business that we can continue to drive within the U.S.

And then much more so globally. We've been building our international business. It's about 20% of the business today. And, you know, as we continue to build that awareness and have people learn about the brand, as soon they try the product on, there's a lot of stickiness once they've tried that product, they're with us. And so we can continue to invest in that upper funnel to drive that awareness. And really build the brand for the future.

Great. So I'm going to move over to the competitive landscape. So when you started this journey in 2021, or at least since I've known you from the IPO, there were a lot of, you were kind of the transformation, right, you were moving from kind of a primarily wholesale driven account based system to the DTC model. Can you talk about today, five years, five and a half years later, how some of those competitors that we thought would be difficult for you to move aside, how the landscape has sort of shifted more in your favor, and what are the big changes that you're seeing today amongst the competition?

I think there's really two parts of the competitive landscape. It's kind of the old world, as you mentioned, the dinosaurs that kind of, I think there's really two parts of the competitive landscape. It's kind of the old world, as you mentioned, the dinosaurs that kind of -- were essentially licensees of other companies like Cherokee and Dickies and Grey's Anatomy Scrubs, which is a license from ABC Studios, the TV show. Which is crazy. And all of those companies would then sell to scrub stores and strip malls where there'd be a rack of black and a rack of navy and next to bedpans and knee braces and that was like the industry, right? And so -- and they were -- and economically, it didn't make any sense because they were paying a 10 to 12% royalty fee to the license holder, they're giving 60% of the price to the wholesaler. And so it was just like a -- and they didn't know the names of their customer because somebody else was selling to the end user, the healthcare professional. So that was the industry. We called it the anti-moat. Those companies are still stuck in the strip mall, right? And so that, a lot of those companies, the largest company has since gone bankrupt and is restructuring. And I think even now it's going through a number of challenges.

And then the new world. We were pretty -- like we didn't do a lot of press because we didn't feel like that would do anything for us. So, you know, a lot of, like, I would say the copycats were very behind in terms of like they saw our success in IPOs, then they tried to copy us. A lot of them launched two years later, kind of like, were like, oh, this is harder than I thought, and then got bored and then went away. And then some of them are still around. But I would say if you were to take the full like copycat space, you know, and combine all their revenue, it's like a fifth of our size. All of it. And scale matters, right? Because like our marketing budget's bigger than their revenue. And that's hard to compete with. And our relationships with our manufacturers are really deep, and so we're able to innovate and do things that others can't do. And they can't access our ambassadors that are really important to what we do, and they And they just don't think like we do, right? And not to say that we are not complacent, we're paranoid, we got to be better, faster, smarter than everybody else, and all of that.

But at the end of the day, I do think the moat has never been wider between us and everybody else, and we've never been better positioned from a product and a marketing standpoint to continue to execute on all of our initiatives and continue to deliver on our goals.

Great. Let me just remind everybody where you are in that journey. This year, we're looking at about $760 million top line. We always say the path to that first billion is really, really tough. And then at that billion, you get enough eyeballs on you and you make enough of an impression that one to the two starts to really happen. So you're right on that kind of big inflection point. So as we talk about the revenue growth formula, we talked about customers, new acquisition, but let's talk about wallet expansion, right? Share of wallet. How should we think about the opportunity to grow spending from existing customers, which would complement the new customers?

Sure. I think that the new customer opportunity is just as big, sorry, the repeat frequency opportunity is just as big as the new customer opportunity. Right? We talked about 140 million healthcare professionals. We have 3.1 million active customers. But there's a huge opportunity in terms of how often healthcare professionals are coming back to replenish their uniform with us. And so healthcare professionals, you know, they come to us, they might buy the Catarina top and the Isabel pant. Those are two of our best-selling products. Check them out. And then they are going to come back because they love it so much.

And we're not paying for them to come back, right? That's the beauty of the product being so great, that people want to come back, and they need their uniform to go to work and do their job. On average, healthcare professionals are buying about four to six sets of scrubs a year. They have eight to 12 sets of scrubs in their closet. They're replacing their uniform wardrobe every two years. And so this repeat dynamic is incredibly powerful. It's the difference between FIGS and almost every other consumer company on the planet.

The acquisition is mainly from word of mouth because everyone's a walking billboard acquiring that next customer for us. That's why our marketing is so efficient. And then on the repeat side, you're coming back because the product is so great. And there's no reason why you would need to see an ad or a website or whatever to buy it again, right? So that replenishment dynamic is super strong. And so, you know, revenue per customer record $229. On average, healthcare professionals spend $550 a year on their healthcare uniform. And so a lot of runway to continue to penetrate the full share of wardrobe. And we're going to continue to do that.

But, you know, it is not just about the scrubs. It's also about the non-scrubs. Non-scrub wear grew 40% in the quarter. That's your under-scrubs, your outerwear, your compression socks. We have an amazing accessories business that's, like, blowing up right now. We just made an acquisition of V Coterie, which is a pin and jewelry and charm business, which is awesome. And so, you know, all of the ways that not only all the products you need in your job, but also how are you personalizing it's super fun, it's super cute, and there's all these ways that we can make it fun and cute for our healthcare professionals.

Yes, I remember again, so much of this reminds me of the IPO. You had said, we all get up in the morning and we get to pick an outfit. We get to pick what we want, the expression of who we are, and they don't. And so with FIGS, they're offering kind of this version through V Coterie and all the personalization to actually have an expression of who they are from eight to eight and all the way up all day long. Yes. Which brings me to my third pillar of growth, which is, you know, total addressable market. So you touched a little bit on sort of the new TAM opportunities. Let's talk about the V Coterie a little bit, and then what product innovation sort of in the pipeline that you can share with us excite you the most today?

I mean, I think the people talk about the TAM and a lot of companies talk about category killers. We talk about category creators. How are we creating categories, creating products for this industry that don't exist? I mean, we literally did that with the scrub jogger. It didn't exist. No one even knew what that, no one knew what a scrub jumpsuit was. We invented it and now it's like a lot, a lot of sales. Okay. So that's how we think about our industry and leading the industry and leading with product innovation. And I think there's so much that we're building out in terms of like take under scrubs or take outerwear, in terms of weights, in terms of the environment that you're in. You need different weights, whether it's colder, whether you're working outside on shift, whether you're working in a freezing hospital.

You need different products that suit that. And so, but your point about V Coterie, like this is a brand new space for us. We have been working with Lynna and V Coterie for eight years. We had been, you know, essentially partnering with her and collabing with her to the point where we saw how incredible this product was and how much love there was for the pins and for the jewelry and how people were integrating that into their uniform that we made the acquisition. And so super excited about what this is to become and super excited about accessories generally and what that will be.

And so, you know, I think when we think about our customer journey, when we think about, you know, this love that the community has for FIGS, and how much more we can offer. What other ways can we serve them? And what other ways will be meaningful for them? And so I'm excited about all of it. I'm excited about, like, we are just getting started in all of these areas. But even within scrubwear, we're really inventing. We just launched our FIBREx fabrication. It's game-changing. And the amount of durability and storage and what you can do with that product is unbelievable with that fabric. So innovating across the board.

Great. And then one more extension of the product, so beyond scrubs, talk about the kind of lifestyle component of it. You talk about on-shift and then off-shift. How much are you seeing FIGS as a brand extend into their weekend life or their off-shift life?

Yes, and that's, you know, I meant to say about TAM too, and then lifestyle is all, it's all tied together, right? Like, lazy companies sell into TAM, innovative companies create TAM. We create TAM every day, at FIGS. That is the goal, right? It's, completely changing the game. Like, even in the TAM numbers, like the total addressable market numbers out there in the industry, they don't include underscrubs and outerwear. Those are our two biggest non-scrub work categories. And so, like, all of this extends beyond the shift and extends beyond what people thought of as healthcare apparel. In terms of lifestyle, you know, healthcare professionals are, like Us Weekly, they're just like us, you know, like celebrities. They're just like us, they go get a coffee, they're in a surgery, they're watching Bravo, like they have full lives. They're drinking a glass of wine with their friends at night and they need a brand for them. So we are that brand, right? And so having off-shift products or loungewear, right? And it's really around recovery.

How are you -- just did a 12-hour shift, right? How are you recovering for that next shift? And what are the products that we can align with that so that you can seamlessly be ready for your next day or the night shift? Many of our nurses, many of our doctors, are working nights too. So it's about all the layering pieces on shift, off shift, and then head to toe from your scrub cap all the way to your footwear. And what's under scrubs, what's outerwear, and how can we really align that for your different activities on shift and think about we think about low-impact activities, medium-impact, and high-impact, and how do we build layering systems for each of these types of activities for real-world settings. And it's all about solving problems, right? We're listening to our customers every single day, we're getting feedback. They're very loud on what they like and what they don't, which is awesome. They tell us exactly what they want. And then we're giving them what they didn't even know they want, right? Like, what is that version of like a faster horse? Well, no one thought the car would exist. For us, what is the car? And we think about that every day.

Great. One of the sort of misunderstandings or misperceptions is that men aren't as easy to sell to, right? They don't change over their wardrobes as much, and they don't perhaps care as much about fit, form, and function. Dispel that notion.

Yeah, men care. Well, it's funny because, like, we have a lot of women in our company and we joke about, you know, some companies, some athletic brands, they had to be like, figure out the women. Like it's like it's a pink it and shrink it. That was. So for us, I think men is about 15-ish percent of our sales and the industry is 25%. And so men is a massive opportunity. And I would say, we're really focused on ensuring that our products and our assortment and the cadence in which we launch and the marketing aligns perfectly with the, with male healthcare professionals, it's super important.

I think we've done a great job, but there's much more to do and a huge opportunity because they do care. And they do buy differently, right? They'll buy the same, like they'll buy the Leon top and the Cairo pant, which is two of our best-selling men's products, and they'll want it in like navy or black. And then they'll buy like four sets at a time. And then they'll come back a little less often versus women, they want every color drop and they'll buy a set or two, right? So you just understand the nuances and the differences and then really serving them in the best way we can but massive opportunity continue to get more of our men on board.

Great. Okay, so let's get to the numbers for Sarah. Let's talk about the structural margin drivers, the drivers of top line, and then pricing power. Again, I'm going to reiterate numbers that you already know. For this year, you had guided to growing over 20%. We're looking at about $760 million top line this year. An adjusted EBITDA margin of 15%. And those are all growing double digits, at least the top line, over two years. So talk to us about the sustainability, because we talked a lot about top lines, so now let's kind of drill down into the P&L. The sustainability of that 68.5% gross margin, it was always, you know, very attractive gross margins from the get-go. But is this kind of the new norm, or are there opportunities for upside, you know, going forward on that?

So our gross margin is very strong. We've, you know, historically run in that 67% to 68% profile, this year with the tariff refunds, that does create some abnormalities. So we're guiding to 69.5% for this year, just given that dynamic. And as we go forward, yeah, I think that we have opportunity to continue to hold that rate, and we've been working on making improvements in terms of how we're buying, how we're working with our factories that can continue to help that. We do expect a headwind in terms of tariffs as we head into 2027, just given that there will be the impact of the IEEPA tariff refunds, but something else to keep in mind as it relates to our gross margin, our cost of goods sold is just all product costs, so it's all variable.

Other companies often have overhead or other fixed costs that can leverage over time that isn't a dynamic for us. As we think about the overall P&L, we're not planning on gross margin being a major contributor to margin expansion, but instead we see a really great opportunity to continue to improve our operating cost structure, both in terms of efficiency as well as leverage. So we'd expect that, you know, profit expansion over time will really be driven by our operating expenses while still being able to mostly maintain our gross margin profile.

Great. A couple of things on the short term, the near term, and then the longer term. Oil has been up for a lot longer than we would have hoped. It looks like it's going in the wrong direction, frankly. When you think about the costing horizon, you know, I'm not asking for guidance, but just how should investors think about sort of as we roll into 2027 on some of the pressures on that costing and can you offset that through, you know, scale buying, et cetera. And then on the longer term for the operating margin, how much additional operating margin or operating leverage exists in that model?

Sure. So as we think about our product costing, I mean, we had already negotiated rates for 2026 and so haven't seen notable impact there. We think that it can impact us in the future, but scaled buying can also be an offset as well. And so we are going to continue to navigate around that. And I would say that as we think about the other impact really around oil is we've seen our carriers have applied various different surcharges that began really in second quarter. And so, you know, our guide has continued to improve, but we have been picking up more and more cost related to both inbound and outbound shipping. And so we first increased our carrying costs really related to, um, inbound. Now we are also carrying additional cost related to some of the air freight as we continue to navigate around some of the supply chain dynamics.

And so, we are carrying quite a bit of extra costs for this. So if over time those costs reverse, that will be a benefit to the overall P&L. So for now, we continue to assume those rates will stay. They've been in effect for quite a while. We don't see those coming down, but if and when they do, there could be benefit there to the P&L.

Great. Okay, let's talk about international. There's so many things to talk about. So many good things. So it continues to be one of the most exciting parts of the story, and it remains substantially ahead of the rest of the overall business. So why is the FIGS brand resonating globally with, again, fairly low brand awareness?

Right. Yes, I mean, healthcare professionals are everywhere, right? And there are 140 million of them around the world. And I think that FIGS is timeless and it's ubiquitous. And whether you're a healthcare professional living in Mumbai or Paris or Munich or Kentucky, you need a product that's going to help you look good and feel good and perform at your best. I mean, that is the human condition. And so I think when you think about like FIGS, it really does translate globally. And there's a lot that we're doing, right? We're in 85 countries. We've built out our strategies around go deep and go broad. We're going deep in Canada, Mexico, U.K., Australia, really localizing -- having boots on the ground, building out our ambassador program, doing more top of funnel marketing, really understanding the nuances of that marketing and really honing in on what makes sense, and that's working, and you're seeing that.

A lot of the 67% growth for international for the quarter is in the core large markets. That's where the growth is coming from. And then the other markets is where we're going broad. We're turning on digital marketing, we're getting our ambassador program going, and that's been helpful. And we'll see, that'll be future, that'll be a future growth level, a future growth lever in the future. So I think and then finally Asia, right, Korea, Japan, and China. These are markets that we're investing even more to get on the right social platforms, to build out the community on the ground. There is a little bit more nuance, but overall, our assortment, our product, our brand, is really resonating on a global level. And the playbook that we built in the U.S. is working on a global scale.

Great. Last part of the community hubs. So many more opportunities, but let's talk about the community hubs very quickly. They're more than stores, right? They're places of kind of community gathering. Can you talk about, are they primarily acquisition vehicles, awareness drivers, community centers, profitability drivers, or all?

They're all. Yes, they're all of those things. Really excited with what we're seeing from community hubs. We have five today. We're going to be opening four more. What we see is they are a great customer acquisition vehicle for us, so that's been really great. They're an amazing awareness and billboard for our brands. They're helping to expand some of our different categories in terms of new fabrications, men's penetrate higher, and it's the opportunity for the customer to really try on, find the styles that work for them, feel the fabrics, understand some of the newness that we're offering. And financially, they've been performing beyond our expectations really, really well. So a great acceptance for these new stores.

And we see the opportunity to add on more stores into the future. And they're really helping to grow the business within each of the cities that they're in. We see halo impact already happening in some of our newer locations. So really excited about the results. We think that this will be a profitable channel for us. And also accretive to the overall business. So everything is really working very well. It's very strong. Super excited about the trends that we're seeing and really excited to bring the FIGS brand to our healthcare communities right now across the West. So we're underway, and yes, more to come in the future.

Okay, so we have a minute and a half left. They were timing this perfectly. Trina, with one final question. We're sitting here, with investors after this fireside, and you wanted them to understand one thing differently about FIGS than they did before they walked into this room. What would it be?

I think that we're building an iconic brand over the next 100 years. We're going to be continuing to balance growth and profitability in a really sustainable way. And what you've seen over the past year around the -- around sustained growth and around community building and around product innovation. We're going to continue to do this the hard way, the right way for the long run. And really understanding that our customer is different. Healthcare professionals are different, and they need to be served in a very unique way. And we are the brand and the only brand for them. And this is what we've built authentic connections over the last 15 years, and we're going to continue to do that over the next 100. But super happy to be here with you. Thank you so much.

Thank you. And I always kind of just whenever you're -- I've been covering these stocks consumer stocks for gosh over 20 some odd years. And what I always think that investors may not fully appreciate is the emotional connection. At the end of the day, when you put on that brand, that piece of apparel, it should make you feel like a million bucks. And I think you do that with FIGS. Thank you so much, Trina and Sarah. Thanks for joining us. Thanks, everybody, for joining.

Hello, everyone. Thank you for joining us, and welcome to the FIGS Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Tom Shaw, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us to discuss FIGS Second Quarter 2026 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Sarah Oughtred, our Chief Financial Officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunity or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10-Q we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update.

Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in our shareholder presentation. And now I would like to turn the call over to Trina.

Thanks, Tom. Good afternoon, everyone, and thank you for joining us today. FIGS strong broad-based momentum continued in Q2, highlighting the sustainability of our success and our truly unique positioning. Net revenues grew 29% to $197 million, beating our outlook and marking our third straight quarter with 25% plus growth. Notably, this is the strongest sustained stretch of growth we have seen since 2021. What is most exciting is that our growth is coming from across our business rather than from just one part of it. We are seeing tremendous traction across the board, our channels, product categories, geographies and customer cohorts, driving a number of record highs for the brand.

As examples, we have never sold more scrubwear in a single quarter than we did in Q2 and our 3 market expansion opportunities, international, Teams and community hubs, each achieved new highs. Our strength is seen in the metrics. Active customer growth surged 13% to 3.1 million. AOV hit its own record of $127 and purchase frequency continued to increase. This powerful combination drove net revenues per active customer to an all-time high for the brand of $229, surpassing even our COVID era peak of $227. This success is the manifestation of everything we've been outlining in recent quarters and gives us even greater conviction in the growth opportunities that lie ahead. Just as impressive is our progress on profitability. Excluding the prior year portion of tariff refunds, adjusted EBITDA margin surged to 18.6%. Underlying that performance, our strong margin expansion was driven by efforts to increase full price selling and improve returns, both strong indicators of brand health as well as overall expense leverage given our incredible top line momentum.

And finally, we have not only accelerated our share buyback efforts during the quarter, but just announced a new $100 million authorization, demonstrating the confidence we have in our brand, our strategy and the opportunity in front of us. With this strength, I want to take a moment to reiterate why we believe we are winning because I think it is an important context for everything that follows. It starts with brand differentiation. Technically advanced products are nonnegotiable for us, and we are extending our premium positioning and bringing even more impact and relevance to our product lineup from scrubs to the full layering system to solve needs of health care professionals. And what truly sets FIGS apart is our unique ability to drive connection and be part of the cultural conversation in health care in a way no one else is.

This combination, product and storytelling, is incredibly powerful and hard to replicate. Second, we are building a durable foundation for growth, supported by sustained investments across our team, technology and customer acquisition. We have talked a lot about our growing sophistication of how we bring the brand and product to life, efforts designed for more than driving performance in a single year. They are about building the resiliency and agility to continue delivering elevated performance across top line, profitability and shareholder returns over the long run. And third, we are serving the best industry in the world. Health care touches everyone. Those needs are only growing as the demands of the profession are compounded by an aging population and growing focus on wellness.

Health care and social assistance is projected to have the largest job growth and be the fastest-growing industry over the next decade, and we see this demand in our data. With an average of over 50,000 new jobs coming into the industry each month this year, the broader health care industry is serving as a powerful driver of overall job creation in the United States. These macro tailwinds, combined with the strong fundamentals of health care apparel, make this industry highly attractive. Unlike other apparel companies, we do not sell product that's driven by fad or prevent inventory risk. We sell nondiscretionary replenishment-driven uniforms that do not go out of style and that health care professionals need all year round. And because so many of them work in densely packed institutions wearing FIGS as a walking billboard, we benefit from a word-of-mouth dynamic that is very unique.

Before I move on, I want to provide a quick update on our supply chain. I used the word resilience earlier in my remarks and applies here too. U.S. Customs and Border Protection recently issued a withhold release order that currently prevents us from importing products into the United States from our partner in Jordan. Through COVID and the disruption in the Middle East, facing supply chain challenges is not new to us, and we have always been able to manage through them due to the strength and flexibility of the supply chain we've built. That remains true today. Our team is cross-functionally adapting our planning to mitigate disruption in the second half of the year. This includes leveraging capacity with our other strong existing partners and expediting their production. As a reminder, our high-volume, low SKU count footprint is a powerful differentiator that makes us highly attractive to the world's best suppliers.

Most importantly, even with this challenge, we are able to raise our top and bottom line targets. We have not only passed through the upside of our Q2 results, we have also layered in increased expectations for the balance of the year. This is exactly the kind of agility that spotlights the strength of the foundation we have built, and it positions us for long-term execution and delivering great products to our community. Now let me share some of the progress we are most excited about across product, brand and market expansion. Starting with product. We are winning at the intersection of style, color, fabric and fit. On style, we are evolving choice for health care professionals, complementing our successful core styles with modern looks that combine functionality, design and comfort.

Our scrub pants are a great example. Wider leg solutions continue to resonate strongly, and we're continuing to bring newness in this area, including new waistband options that debuted this quarter. This strategy reflects our unique merchandising flywheel in action. We launched limited edition options that generate excitement and a quick sell-through while driving greater interest in the core that represents the majority of our business. Color is always important at FIGS. It is woven into the DNA of our brand across both core and limited edition styles. We are always listening to feedback, analyzing trends and responding quickly. Espresso is a great example. To say that our community was clamoring for this color was an understatement, and we heard them. So we responded with two separate launch moments this year, including a product drop just last week that sold out quickly, and we have used color to tap into the cultural moments, incorporating it into our Star Wars collaboration in Q2 and into our new collaboration with Marvel's Spider-Man, which launched this quarter timed with the movie's release and was a huge hit.

On fabrication, we remain focused on delivering across the full spectrum of use cases, complementing our hallmark FIONx with FORMx and now our new FIBREx. FORMx continues to resonate and grow as a complement to our core offering, and we're super excited to build on the FIBREx story in the weeks ahead. And wrapping all of this together is fit. All new products are aligned with the fit work we have been driving the past few years, and we continue to be encouraged by the gains we are seeing through lower returns and positive customer feedback. On non-scrubwear, we remain focused on building out our layering system. We are winning here. 40% growth in the quarter was the highest we've seen in nearly 4 years. Non-scrubwear now represents nearly 20% of our business, and we believe it can mix even higher over time as we build out key areas, including under scrubs, lab coats, outerwear, footwear, medical-grade compression socks and jewelry.

Health care professionals may wear uniform, but they're looking for ways to personalize and accessorize their look, which brings me to something we're incredibly excited to announce. As you may have seen from our recent social posts, we have acquired V Coterie, a long-time partner of ours on pins. V Coterie brings a broad range of pins, jewelry, charms and accessories dedicated to the health care community. These are not just any kinds of accessories. V Coterie's founder, Lynna Van Merkey, who we are excited to announce is now part of FIGS, is a former dentist and an incredible entrepreneur who has creatively married jewelry and health care in a way no one else has. While V Coterie is immaterial from a purchase standpoint, our community loves these products, and we believe this positions us to unlock meaningful growth opportunities in this category going forward. Ultimately, this is a great example of how we drive a greater share of wallet and expand consideration for our brands. Moving on to the brand side. We had a series of powerful moments throughout the quarter.

And what I want to highlight most is how we're threading our support of this community across multiple efforts in real impactful ways. Starting with Nurses Week. We are excited with our financial performance, though the bigger story was how we brought an authentic reflection of the experience of nurses to life. This work highlighted the multitude of challenges they face every day on the job while also celebrating their unwavering commitment to always putting their patients first, something that will never change. That work then carried forward in a profound way 2 weeks later when we took action against those very challenges at our Healthcare Human Rally in Washington, D.C. I previewed our plans on the last call and the actual event surpassed our expectations. This was our biggest advocacy effort to date with hundreds of awesome humans at the rally, more than 30 meetings with key members of Congress and triple-digit gains across key social measures. Together, we pushed forward on 3 critical priorities: passing the FIGS-Created Healthcare Human Act, the first ever federal tax credit specifically for health care professionals, funding the Dr. Lorna Breen Act to provide mental health services specifically for health care professionals and introducing the Speak FREE Act, protecting health care professionals right to speak up when they have safety concerns for themselves or their patients.

Noah Wyle was by our side again, and I could not be prouder of what this community showed up and did together. We then took these efforts a step further with the return of our FIGS retreat in June. We hosted nearly 80 health care professionals creating a space where they could recharge, care for themselves, connect through shared experiences and reenter around what matters most. This is a manifestation of our purpose and how we show up for our community, and we're making these important touch points a priority going forward. Our brand momentum has carried into Q3. We have already had a series of great product moments, including our Spider-Man collaboration, the return of espresso and the debut of V Coterie on our platform. And yesterday, we kicked off our back-to-school campaign with the latest chapter of Never Change, highlighting the lifelong learning journey through the eyes of residents. Turning to market expansion. Each of our 3 growth drivers delivered record net revenues. International delivered 67% growth with over 50 points of that growth coming from our existing comp markets. We now operate in 85 international markets, including 27 new markets opened year-to-date. As we become more efficient overall, we are increasing our investments in international brand building. We are finding more ways to localize and activate in-person moments, including our first Nurses Week event in Toronto.

We are in the early innings of recruiting ambassadors and supporting user-generated content in key markets where that has outsized importance. We are ramping new search and social platforms, including LINE in Japan, Kakao in South Korea and Douyin in China, all highly relevant digital channels to accelerate local reach and impact. Looking at our TEAMS business, we continue to build momentum as we focus on strengthening relationships with existing institutions, growing our pipeline of future accounts and executing on our technology road map. As an example, we recently onboarded Bupa Dental Care, a division of the British United Provident Association, which is one of the largest private health care and insurance companies in the world. Our initial work here will focus on outfitting their nearly 400 dental centers across the U.K., demonstrating the type of reach and impact the channel can have both domestically and abroad. Supporting those efforts on the tech side, we continue to add functionality to our platform in Q2.

We have additional work ahead on our road map, all designed with the same intention, make it as easy as possible to outfit a diverse range of health care workforces in FIGS and create unparalleled value in that experience. Community Hubs also delivered record results with both strong comp store performance and new store contribution. Our in-store work remains focused on optimizing the assortment, going deeper in core colors and styles to serve the higher mix of new customers coming through the channel. Looking ahead, our team has signed four new leases for openings planned for later this year, including Fashion Square in Scottsdale, Tysons Corner outside of Washington, D.C., Valley Fair near San Jose, and Aventura Mall in Miami, each leveraging strong local healthcare communities. Our team is already hard at work securing locations for 2027 and beyond, and we cannot be more excited about where this channel is going.

Before I hand it over to Sarah, I want to share one last but important point about what makes me feel so confident. In the past, I've spoken about what I believe to be the leading indicators that tell us where we are as a brand, search, website traffic, social followers and more. When these metrics inflected last year, we believe we are starting to turn the corner, and that's exactly what happened in the subsequent quarter with strong momentum across our business. And what's encouraging to me is that these leading indicators continue to grow, creating a fantastic pipeline for future engagement. And across the entire brand funnel from awareness to consideration to preference, we are seeing year-to-date improvement. Our brand is increasingly cutting through at a time when many others in the industry are treading water.

Ultimately, we believe we are positioned to expand our leadership position in the industry and change the game for health care professionals in ways that no one else can, just as we have been doing for the past 14 years. In the near term, we see this through our strong outlook on both top and bottom lines. And in the long term, we know we're just getting started as there's so much additional opportunity and so much impact we can still have across the health care community. With that, I will turn it over to Sarah to walk through our financial results and full year outlook.

Thanks, Trina. Our second quarter results were outstanding from top to bottom, building off a great Q1 with across-the-board wins and setting us up for a stronger second half of the year than our implied prior guide. FIGS is building a powerful ecosystem for the entire health care community, something that extends well beyond transactions. And this community in turn is instrumental in feeding back to the brand, giving what we believe is a very special and unique story in the broader consumer space. Let me first start with a recap of our incredible Q2 performance, which included a number of key records and multiyear highs that Trina outlined upfront. I'll then provide an update on our increased full year guidance, including our current assessment of tariff-related impacts and our readiness to achieve our raised second half expectations.

On to the numbers, where Q2 net revenues increased 29% year-over-year to $196.6 million, outpacing our outlook, calling for growth in the low 20% range. Virtually all parts of our business are growing at strong rates as we look across categories, geographies and channels. We saw highly productive launch events and promotions during the period and continue to be incredibly encouraged by how we are performing during the business as usual selling days without specific brand activations. Active customer growth accelerated again to 13% year-over-year to reach 3.1 million, led by particular strength with customers coming back to the brand. Average order value increased 9% to $127, led by higher average unit retail due to early 2026 pricing actions and also driven by improved quality of sales that were supported by lower discount and return rates. Complementing these drivers, we are seeing improved purchase frequency.

Together, these factors drove our trailing 12-month measure for net revenues per active customer 10% higher to a FIGS record $229. By category, scrubwear grew 27%, representing 82% of net revenues for the period. We continue to be pleased with the range of performance here with strong growth coming across both core franchises and limited edition offerings. Color in particular, was impactful with improved sequencing and newness also supporting core productivity. Non-scrubwear surged 40%, representing 18% of net revenues. Growth was broad-based, highlighted by underscrubs, where we saw an improved assortment across styles and fabrications as well as outerwear, which was driven by core product family extensions. We are positioned to add even more excitement and differentiation around both of these areas in the upcoming quarters. Accessories are another emerging opportunity with strength registered across diverse areas such as hair accessories, our bags assortment and compression socks. We are excited to unlock further growth with the full addition of the V Coterie jewelry assortment, which has already been a very productive part of our assortment. The overall cohesiveness of our product strategy across color, technically advanced scrubwear, expanded head-to-toe expansions and great storytelling is creating a powerful ecosystem and a real competitive advantage for FIGS. By geography, U.S. net revenues increased 22% to $158.7 million, while international net revenues increased 67% to $37.9 million. In the U.S., I would reiterate some of the leading indicators that Trina pointed out, both as key drivers of our Q2 business and also as bullish signs of what's to come. Strong gains registered across search and traffic are great starts, and we then see the added stickiness through ongoing traction across our social following, e-mail sign-ups and engagement rates. We also saw great signs across both new and returning customers. New customers are increasingly coming in at high values and holding that value in subsequent periods. Returning customer strength reflects high purchase frequency and customers moving into higher spending thresholds.

International growth continues to reflect a strong balance between new and returning customers. For Q2, this included exceptional growth in Europe, Latin America and Mexico as well as meaningfully better performance in Canada, Australia and the Middle East. As we turn to margins, let me first provide some details on tariff refunds. Last quarter, we indicated that we had taken action to recover approximately $20.5 million paid under the IEEPA tariff. Based on initial receipts of $4.5 million in Q2, we assessed that the recovery of the remaining claims was probable and included the full benefit in our GAAP results. This resulted in a $15.4 million reduction to cost of goods sold, which related to tariffs expensed since the IEEPA tariffs were implemented in February 2025, including $7.9 million expensed in fiscal 2025 and $7.5 million expensed in the first half of fiscal 2026. In addition, we recognized an approximate $5.1 million reduction in the carrying value of our inventory balance for tariffs previously capitalized, which will be realized on the P&L as those goods are sold in future periods. Subsequently, we have received the full amount of the refund in Q3, which we expect will be recorded in cash with our future results. I'll further detail each of these impacts to results and our outlook in my commentary ahead.

Looking at Q2 gross margin, we experienced an 820 basis point improvement to 75.2%. This includes the 780 basis point cumulative impact from the $15.4 million tariff refund. This core improvement excluding the refunds was primarily driven by the positive impacts from pricing and ongoing efficiency efforts, including product costing as well as better-than-expected performance from higher full price selling and lower return rate. These gains more than offset the impact of higher non-IEEPA tariffs. Our selling expense for Q2 was $43.7 million, representing 22.2% of net revenues compared to 22.6% last year. The lower expense rate was driven by favorable outbound shipping rates as well as net revenue leverage. Partially offsetting these efficiencies, we had the impact of supply chain investments and international mix.

Marketing expense for Q2 was $28.5 million, representing 14.5% of net revenues, down from 15.2% last year. Following the higher planned marketing rate in Q1, our Q2 performance reflected the impact of net revenue leverage as well as digital CAC efficiencies. At the same time, we continue to opportunistically invest across our business, including brand awareness initiatives internationally, our FIGS retreat activations and through expanded brand partnerships. G&A for Q2 was $40.4 million, representing 20.5% of net revenues compared to 22.8% last year. The lower G&A rate was primarily due to net revenue leverage and lower stock-based compensation expense, partially offset by investments in our team. Inclusive of the tariff refund benefit, our operating margin for Q2 was 17.9% compared to 6.5% last year. Net income for the quarter totaled $28.4 million or diluted EPS of $0.15 compared to net income of $7.1 million last year or diluted EPS of $0.04.

Measuring adjusted EBITDA for the period, we have excluded the $7.9 million benefit of IEEPA tariff refunds that pertain to tariffs on goods sold in fiscal 2025. This resulted in adjusted EBITDA margin of 18.6% as compared to 12.9% in the same period last year. While Q2 adjusted EBITDA does include the benefit of the portion of the tariff refund attributable to goods sold in the year-to-date period, which contributed to our stronger performance, it aligns with how our forward-looking performance will be accounted for as impacted inventory is sold. On our balance sheet, we finished the quarter with net cash, cash equivalents and short-term investments of $296.3 million. Inventory decreased 12% year-over-year to $119.6 million, inclusive of the $5.1 million IEEPO-related inventory adjustment.

Outside of these developments, we continue to drive greater efficiency here as we balance strategic buying with more proactive inventory management. We expect Q3 inventory will remain down double digits year-over-year given our supplier transitions, though remain confident in delivering our stronger top line outlook. On the capital allocation side, share repurchases during the quarter under our ongoing repurchase program totaled approximately $24 million at a weighted average price of $11.94 per share. We have now repurchased approximately $81 million cumulatively since initiating the program nearly 2 years ago. Additionally, our Board of Directors authorized an additional increase of $100 million to our ongoing share repurchase program, bringing our total share repurchase capacity to $119 million.

Finally, capital expenditures for the quarter were $2.6 million, continuing to reflect software capitalization and leasehold improvements with larger community hub-related outlays still planned later in the year. Now turning to our updated outlook. Our full year 2026 net revenues are now expected to grow approximately 20%, ahead of our prior outlook of 14% to 16% growth. This includes both our stronger first half momentum as well as higher expectations for the back half of the year. Embedded in this outlook, we are planning for Q3 net revenue growth of approximately 20% year-over-year and Q4 net revenue growth of approximately 10% year-over-year. This incorporates our comparison against improving performance as we move through the second half of fiscal 2025, including our 33% growth acceleration achieved last Q4. On to gross margin, we now expect our full year GAAP gross margin to approximate 69.5%, inclusive of the tariff refund during the quarter and the expected benefit as impacted goods in inventory are sold during the second half of the year.

The underlying gross margin expectation is unchanged from our prior guide, which called for modest year-over-year full year improvement from 66.5% in fiscal 2025. On the positive side, we see both our Q2 operating performance, coupled with the modest improvement relative to our prior expectations given the Section 301 tariffs that were implemented as of July 24. This new rate assumption of 12.5% compares to our prior global tariff assumption of 15% but with average costing and the timing of shipments, the benefit is minimal for the fiscal year. Largely offsetting these positives, we plan to use airfreight to expedite certain products. It is important to remind you of the gross margin comparisons in the back half of the year. We continue to expect a year-over-year decline in Q3, followed by a large year-over-year improvement in Q4. While our Q4 gross margin rate is planned to be the lowest of the year, it is still expected to remain well above the prior year in part due to the large inventory write-off comparison.

Shifting over to SG&A. We expect better net revenue leverage will play the largest factor overall, benefiting Q3 relative to Q4. We expect this to mean expense leverage across selling, marketing and G&A in the third quarter, though only on the marketing line during the fourth quarter. Overall, we have increased our full year operating margin outlook from between 7.8% and 8% to approximately 10.8% inclusive of refunds. We have also increased our full year adjusted EBITDA margin outlook from between 13% and 13.2% to between 14.8% and 15%, inclusive of refunds associated with our first half performance and sell-through expectations in the second half. This includes an expected Q3 adjusted EBITDA margin of approximately 14%, up from the 12.4% level in the prior year period.

In summary, the FIGS brand is resonating more than ever, and we are executing against this opportunity exceptionally well in a dynamic operating environment. Our net revenue growth guidance is nearly double our original outlook, while our profitability continues to inflect. We believe this demonstrates the growing resonance of our brand, the incredible execution of our team and the unique opportunity we have ahead to continue redefining expectations with the health care community. We are now happy to take your questions. Operator?

[Operator Instructions]

Your first question comes from the line of Bob Drbul with BTIG.

Congratulations on another stellar result.

Thanks, Bob. Appreciate it.

Got it. I guess the biggest question that I would love to just start with is when you look at new customer growth, returning customer growth, can you just talk us through what you think is working so well right now with the customer situation?

Sure. I mean I think it goes back to our 2 North Stars, which is product and marketing. We have continued to deliver the best product that meets every need of a health care professional, and we're doing that head to toe across our layering system. We've continued to make steady improvements on our fit, on our function, bringing comfort, durability and style to our community. And I think on the second piece, which I know you know, Bob, is around marketing. We continue to roll out incredible campaigns that are really resonating and going viral regularly within our community. And you've seen that throughout the year with our Never Change campaign this year. And so I think that's driving new customers to the brand. I think the beautiful thing about our business is that so much is still driven by word of mouth. Every big customer is a walking billboard, acquiring that next customer for us, and that's truly a unique dynamic given the densely populated environment that health care professionals work in. And then in terms of the returning customer piece, this is a replenishment-driven industry. Health care professionals need their uniforms to go to work and do their job, and they're coming back over and over again for their Catarina top and Isabel wide-leg pants, right? They're coming back for their underscrubs and their scrub jackets and their compression socks and kind of all of these different pieces and different parts of their uniform that they need to go and do their job. So it's been exciting to see the results for the quarter, but we really do feel like we're just getting started. And so more to say, but definitely excited by what we're seeing in the business and what we're going to continue to execute on.

Your next question comes from the line of Brian Nagel with Oppenheimer.

So I would like to add my congratulations. -- a spectacular quarter here. Congrats.

Thank you Brian.

I just want to follow up a bit on Bob's question. But one of the -- when we look at that, the customer growth and really the overall sales here, in the past, I think you talked about lapsed customers and maybe that being a point of weakness. It seems like it's a point of strength now. So what do you see with that customer base, those who had maybe shopped at FIGS before went away, and they're coming back now? Is that becoming an incremental significant driver?

We're really driving the customer growth across several components. So customer growth is being driven from new customers. It's being by those lapsed customers that are coming back and also through just the frequency of our returning customers. And so all 3 of those have really been working for us now for several quarters. When we look at those lapsed customers, they are coming back at a good clip. That has been pretty consistent for us. And we feel like we are providing the right product assortment, the right opportunity for them to continue to come back and be engaged in the brand. And so we believe that the growth going forward will continue to come across all of those components.

That's helpful, Sarah. And my follow-up question, just with regard to the tariff refund. So a lot of consumer companies now are starting to discuss this topic. But clearly, a boost here. We saw at least in the GAAP results. But I guess the question I want to ask is strategically, how do you -- does this receiving these refunds, does it change how you think about sort of, say, doing business over the next -- over the -- in the coming quarters?

Yes. So we did get back $20.5 million, and we are in a very significant cash position. So we're not earmarking it for anything specific. What we do every day is about improving the lives of health care workers, finding solutions to their problems. So we are going to continue to do that as we have been doing, which is investing back into our business to fuel our efforts towards that mandate. And we're also going to continue to deliver returns for our shareholders. You would have seen that with us buying back. So I don't think for us, it changes anything. It just helps continue to deploy that cash in a really efficient way to drive future growth.

Congrats again.

Your next question comes from the line of Brooke Roach with Goldman Sachs.

Trina, I'm curious if you could talk a little bit more about the strategic expansion of your business as you look to do this expansion into V Coterie and jewelry. What does this mean for your category and your TAM overall as you look to build upon all aspects of wardrobing the health care professionals?

Thank you so much, Rob, for the question. We couldn't be more excited about the acquisition of V Coterie. V Coterie was founded by an incredible entrepreneur named Lynna, who now is a part of FIGS. She's our Head of Pins, Charms and jewelry, and she's somebody that we've known for quite some time. Heather and I have known Lynna for about, I would say, over 7 years. She actually was a FIGS ambassador and also has built this incredible company. And it's -- to your point, it's really about helping health care professionals personalize their uniforms and it tells something about who they are and what they do. And -- also charms and jewelry and pin, it's a really personal thing, and it creates this very deep emotional connection between us and our community. And we're really looking to help health care professionals celebrate milestones like graduating nursing school, earning certifications, working in an ICU. And so this is like a really exciting thing that's going to help us build even more emotional loyalty with our community.

And then to your point, I've always said that lazy companies sell into TAM and innovative companies create TAM. And that -- this is a TAM creation opportunity. We are inventing TAM where this wasn't really part of the industry, right? And so having these jewelry and charms and pins, this is a massive industry that wasn't part of our industry. And so building that in and making it fun and cool has been really exciting. We're seeing such -- even in the first month, we're seeing such a strong response. We've sold out of a number of key styles across our assortment already. We're moving fast to get back into that to get that back into stock. And so I would say, overall, like health care is hard. And as you know, Brooke, we bring the fun, which is just so, so important, and that's what we're going to continue to do as we continue to drive this connection with our community.

And Sarah, maybe just a follow-up for you. With adjusted EBITDA margins now guided at about 15%, do you think that this is a new base from which you can grow as you move into 2027? -- especially as you cycle some of these tariff refunds and work through some elevated raw material and oil costs?

Yes. So I would say just to ground in that 15%, it does include the benefit of tariffs that were previously spent in Q1 and Q2. And so that is a benefit that needs to be considered. I would say offsetting that, we do have some additional airfreight that we're bringing in. And I think it is a fairly clean base for us to continue to build off of into the upcoming years. And so many different puts and takes, but that 15% does represent how we would be reporting our results for any future years as well.

Your next question comes from the line of Matt Koranda with ROTH Capital.

Great job. I guess I'll ask one on AOVs. They really took a step up in the second quarter. Just wanted to see if you could maybe unpack some of the drivers there in terms of pricing? Are consumers building bigger baskets? Or are we getting a better mix around the outerwear assortment and some of the higher ASP items there?

Matt, so our AOV did increase by 9% in the quarter, consistent with the growth that we saw in Q1. A portion of that is really being driven by the pricing that we took in Q1. In addition, we're seeing the added benefit of lower discounts and improved returns. So that's really been great to see as well. And so yes, we're happy with how that's trending. It isn't necessarily coming through UPT at this point, but we did expect that just given the higher AURs with pricing. So overall, those expectations are still beyond what we had originally thought when we had taken pricing and really happy that there's other factors, as I mentioned, outside of pricing that are really driving that higher quality growth within our AOV.

Okay. Helpful. And then just going forward, I guess, what are you thinking in terms of what's embedded in the sales growth outlook from an active customer standpoint? I guess what I'm asking is engagement trends have just been very strong for the last couple of quarters, and I would assume you kind of pulled those forward. But how should we think about, I guess, higher engagement with existing customers versus new customers that are driving the growth for the remainder of the year?

Sure. Yes. So I mean, as we said before, the growth in total revenue is coming from growth in our active customers, growth in our orders per customer and growth in our net AOV. We would expect that, that active customer growth will continue to be at a strong rate for the rest of the year. We also think that AOV will continue because, again, a lot of that is really from pricing. So that will continue for the rest of the year until it annualizes in Q1 of 2027. And then I think it's the orders per customer that we've seen really good frequency come. We're not planning for that same degree of frequency growth, but that could be an opportunity if customers continue to engage in the way that they have been engaging with us.

And I'll just add, I think that days between purchase is coming down, right? So people are coming back to us more because of our product, because of our brands and then also the normalization of the industry, right, where people need their uniforms, our health care community needs their uniforms over and over again. And so we're seeing really real success across the board across new, across repeat, across AOV, and it's really not one thing driving the success.

Your next question comes from the line of Rick Patel with Raymond James.

On the strong results. I was hoping you could provide additional color around increasing frequency. So has the primary driver been customers coming back for core products like core scrubs? Or are they buying into the adjacent categories? Given your offerings are expanding with new scrub fabrication and a widening non-scrub assortment, I'd love to better understand what the primary driver of frequency is and just your expectations going forward in terms of where you're most optimistic?

Yes, sure. So I think the repeat dynamics is what makes this industry so attractive. And I think what we've done is not just given the health care community what they need, but also what they want. And so that's really a big driver of the replenishment-driven dynamics of what we do. Coming out of the COVID overhang that we've discussed, that's only accelerated where frequency has accelerated. And you're seeing that in our scrubwear, up 27% for the quarter. You're also seeing it in non-scrubwear, up 40% in the quarter. And so if you think about the trajectory or the journey of a health care professional, they kind of come in on the core scrubs and then they maybe are getting an underscrub and then they're replenishing that their scrubwear again, trying out a limited edition style drop and then they're coming back and buying an outerwear piece, for instance, and then maybe they're coming back and getting their favorite Catarina top and Isabel Pant and new color or two new colors based on the latest drop. And so as you come back more to the brand and after your second, third, fourth, fifth purchase, you actually end up buying even more over time and buying more non-scrubwear over time.

And so this is what's so phenomenal about our business. This is the beauty of FIGS is that we're not paying for people to come back. And as they come back to us more, they get more and more loyal. And so that's -- and it's our job to continue to drive that and help them be more and more engaged with the brand. We are maniacally obsessed with health care professionals, and they are just as obsessed with us and that will -- and we're going to continue to have that dialogue, share their story, show them new products, drive engagement and convert them to being a lifelong FIGS lover.

Can you also talk about your promotional strategy in the back half? Given the strong demand you're seeing on business as usual days, do you see room to pull back on discounts? Or do you think last year's calendar is a good proxy for what to expect this year?

We're always monitoring that. We're continuing to see the outperformance in our business as usual days, which does give us the flexibility to pull back on promo if it makes sense. I think for now, our plan reflects a similar cadence to last year. And as I said, we're nimble. We're agile. We're continuing to monitor the consumer and what levers we need to pull. But for now, we will plan according to the promos that we did in 2H last year. So that includes our back-to-school event that is happening right now. And we always have had an exciting Black Friday, Cyber Monday. So we'll continue with those standard promos.

Your next question comes from the line of Dana Telsey with Telsey Advisory Group.

Congratulations, everyone, on the terrific results. So nice to see. Trina, as you think about the activation and the engagement, whether it's the Spider-Man movie or I think the Emmys talk slot you had last year, how do you think about the go forward? Are there new activations coming? How does it relate to product? On your website, I see some of the accessories and some of the jewelry on the website also. And should we see even more of this non-srubwear going forward? And how does it impact the margins? And just lastly, Sarah, on Jordan and what's happening with getting product and freight expenses, how do you think of the arrival of product? Does -- is there another region that replaces Jordan? Or where does that fit into the receipt of goods?

Thank you, Dana. So yes, it's been incredible to see just a lot of these collaborations and activations really resonate with our community. I really see that with our continued collaboration with Star Wars. And then we had a newer collaboration with a Owala that crushed, I think we sold out in like, I don't know, less than a day. And then Spider-Man, which I mean it's the #1 Marvel franchise, which I wasn't even aware of. It's so killer and definitely exceeded even my expectations of what that would have done. So we always have new ideas. We have the best team. We have this world-class team that's always looking around and seeing what really makes sense for our brand, what really aligns with our community and what's going to get people super excited. And V Coterie, to your point, is another excellent example of listening to our community and giving them what they want and delivering beyond their expectations and once again, bringing the fun. And we just have the best creative team that's always thinking outside the box. And so really excited about what's to come in the second half of the year, what's to come in '27, '28. We never run out of ideas, but I'll pass it over to Sarah to handle all the other questions.

Yes. So non-scrubwear does carry a lower margin. Right now, non-scrubwear is still under 20% of our business. So we are able to absorb that. We have shared that as we think about margins longer term, our profit expansion likely won't come from gross margins just given some of this mix shift that's happening, but we see the opportunity to more than offset that through the opportunities that we see with SG&A to continue to expand that profit margin in the years to come. Non-scrubwear is a great way for us to continue providing that full wardrobe for the health care professional. So we like what it does for engaging with that customer, continuing to drive that top line and really helping to fortify our position. And so we can manage the whole economic profile in the out years.

Your next question comes from the line of Adrienne Yih with Barclays.

I'll add my congratulations. It's really nice to see kind of the acceleration and the inflection. On that topic, this is 3 consecutive quarters north of 20%, 25% revenue growth. You've got the health care professional tailwind. You've got the active customer growth, you've got the RevPAC kind of growing double digits. Are we at -- or I should say -- maybe I'll ask it differently. Why should we not think that this is a new level of sort of double-digit top line growth -- and then can you speak to some of the marketing that you've done or did in the past to heavy up in the fourth quarter and Q1? What's the type of marketing is that? Is it brand awareness? And are we seeing some of the halo effect, the latent effect of that kind of flowing through and really starting to resonate?

On the marketing front, I think we're really focusing on brand awareness and getting more of this community to know about us because once you know about FIGS, you love FIGS. And so I think that's a really interesting dynamic, right? We have 3.1 million active customers. There's 140 million health care professionals around the world. And so we have a relatively low market share overall. And so we're really focusing on those top-of-funnel campaigns. That's what you've seen, I would say, over the last few years now and getting more and more people to know about us and love us. We bring them from awareness to consideration to conversion. And so we're going to continue to do that. Sarah, do you want to take that first part?

Certainly. We haven't given an outlook for 2027, but we are obviously coming out of Q4 with a 10% exit rate here. So throughout the year, we've continued to see like really strong metrics broad-based across all of our drivers that continues to give us quite a bit of conviction that there's still plenty of growth ahead of us and that we have the strategy [indiscernible] 15% growth in 2025 and now guiding to 20% growth in 2026. So seeing momentum continue ahead of us with everything that we've been building this year, more opportunities for growth drivers to contribute to a higher portion of that growth in 2027 and beyond.

Great. And then for -- can you actually give a comparative metric on the brand awareness that you've built maybe today versus a year ago? And then Trina, this is sort of a rank order question for you. So as you think about the next 3 to 5 years, there's comp growth, right, based on those 3.1 active customers that you do have. But there's so many different vectors of non-comp growth, international, non-scrubwear teams, retail store rollout. Can you sort of rank order where you think the kind of near-term to longer-term drivers of that additional layer of growth could be?

So in terms of our brand awareness, we've seen several point improvement year-to-date in all metrics, both in terms of our unaided awareness, our awareness, our consideration and we a lot of that to the amazing work that the brand is really doing to share about our brand and really have amazing storytelling that really connects with our health care professionals. So really pleased with those trends. The levels that we're at, we think there's definitely opportunity to continue to increase all of those. And we've got the right strategy to continue to go after that.

And then as it relates to the next 3 to 5 years, and I guess what I'm most excited about, it's so hard to rank all my babies. But if I had to, I would say the biggest driver, and you're seeing it in the numbers is international, right? It grew 67% in the quarter. We're just seeing such incredible opportunity from all of these markets, but to see Mexico perform as it's performing, to see the EU, to see LatAm, to see a resurgence in Canada, Australia. I mean, it's just super exciting. And so we're really building for the long run internationally, just the way we did in the U.S., and it's working. If I were to then say, I really am excited about our hubs. We only have five stores. I mean think about some of the largest brands that were at our scale, the Nike and the Lululemons of the world. And I never like to compare ourselves to anybody. But at our scale and doing what we're doing essentially almost all digitally with only five stores is unprecedented. And so we just have so much opportunity. We are just getting started. We just talked about the four that are coming in the back half of this year, and that's super exciting. And so -- and they're performing. They're performing better than our expectations. And we've learned so much and now we're going to step on the gas. And then finally, TEAMS to see these large institutions like Bupa, like European Wax Center coming to FIGS and saying, we're going to spend hundreds of thousands, millions of dollars with you all to outfit our teams and professionalize and standardize our workforce. That's really exciting, too. So if I had to rank, that's how I would rank, but all early stages, all nascent in terms of what these will be for our business and all super exciting when we think about the future.

Your next question comes from the line of Ashley Owens with KeyBanc Capital Markets.

I'll add my congrats as well here. Maybe just to start, digging in on Jordan because that's been a big source of production for you guys in the past. So just trying to size a few things here. I guess, first, how many weeks or months of the Jordan-sourced core product do you already have sitting in the U.S. distribution center? And then second, what's the realistic time line to fully resource some of that volume to other countries such as Vietnam? And how confident are you that you can keep those core styles in stock to support some of these strong demand trends that you have been seeing?

Sure. So sorry, can you just ask the question one more time? It cut out for a second.

Yes. Sorry. First, how many weeks or months of the Jordan Source core products are in the U.S.? And then second, time line to fully resource that volume and confidence in the -- that you can keep the core styles in stock to support the demand that you've been seeing?

Yes. No, I think it's a great question. And I think the challenge that we faced on this isn't new to us. Through COVID and the disruption in the Middle East, we've faced a wide range of challenges. And what you're referring to really is the strength and flexibility of the supply chain that we've built over the past 14 years that has allowed us to thrive regardless. So in terms of mitigation, right, and ensuring that our core styles are in stock, we've really worked cross-functionally and adapted to mitigate the disruption from the WRO. This includes leveraging capacity with many of our other strong partners that we have that we are expediting their production to meet our needs.

We're in a really strong position to manage this because we were already in the process of derisking certain products and launches given the Middle East conflict, which you saw in the changes that we disclosed last quarter. So I'll say that we're in a good position, and we've mitigated the vast, vast majority of the challenge. And so -- and just a reminder, I think I talked about this, but we really are a supplier dream. We have this really high volume, low SKU count business. We have a replenishment-driven business that allows us to really be a great partner to our manufacturers. And so that's paying off now, right, where we are able to be nimble. We are able to move and get the capacity we need to meet the needs of our community. And I'll just say because this is really important, even with this, we're still raising our top and bottom line outlook. We're not just passing through our Q2 results. We're layering even more increased expectations beyond that. And to be clear, even if we would be in even a better position if it wasn't for this challenge, but we're highly confident in executing to both a second half and full year plan that is above what we communicated 3 months ago.

Understood. Maybe just a follow-up with that because you are airfreighting a little bit, is that air freight cost effectively the full offset to the tariff benefit and expectations? Or are there expectations embedded that this persists through the second half? And then maybe just lastly to throw in a question on TEAMS here with the Bupa Dental Care win. But I guess to you, does this signal that TEAMS is starting to hit an inflection? And then I would be curious as to what the ramp in reorder cadence would be for an account of this size?

So I think the way that I could map it out best really is our new adjusted EBITDA guide relative to our old guide. So we're picking up the refund related to the first half and our second half picks up the portion of refunds that was in inventory that will be realized in the second half. So that's over 100 basis points of improvement there. We are flowing through the benefit of Q2. We've then raised the back half of the year, and we're flowing that through. And then we have, yes, some offset from the air freight as well as opportunity to reinvest that flow through back into the business for opportunities where we see the ability to continue to drive growth. So we're being -- we are definitely passing through, and we are continuing to reinvest back in the business. And so many puts and takes, but we are flowing through.

Your last question comes from the line of Nathan Feather with Morgan Stanley.

My congrats as well, really phenomenal results here. I just want to dig in a little bit on the international marketing strategy that you're deploying. Interested here as you've seen such rapid scaling in that business, you try to increase the absolute dollar gains there. How are you thinking about the balance between more global marketing and getting the brand halo from the U.S. versus building awareness and then and building consideration in individual markets? And are you staffing up more localized teams to be able to do that more effectively?

Nathan, thanks so much for the question. I think it really goes back to our go broad and go deep strategy, and that's really working. And so as a reminder, in our go deep markets, which are Canada, Australia, U.K. and Mexico, we're doing full funnel marketing, right? And we're really localizing our brand for that market and really bringing fun and engaging activations to these markets. We are -- that awareness and campaigns are driving interest in our brand, and it's bringing a lot of lower funnel efficiency as well. And so that's great to see. On the go broad side, which is a larger number of countries, obviously, we are testing, right? We are really focused on more of the lower funnel. We're building out our ambassador community in these markets. and that strategy is working. And as those markets gain scale, they earn the right, if you will, to become a part of our Go Deep strategy, where we're investing more dollars behind that. And I would say what we've learned a bit is a bit in these what we will call high potential markets, China, Japan, South Korea, France, Germany. These are markets where we're seeing -- and we're investing in more upper funnel to drive that brand awareness because we are seeing the impact. And so they're getting more of that marketing, and we're localizing as they scale. And so it's really amazing to see how these upper funnel efforts and our storytelling and our creative, which is really our secret sauce, right? It's why we have such a connection with our community globally how that is working on a local level around the world. And as we continue to go here, we're going to continue to execute on this. And we're profitable in almost every market that we're in. And so we're really seeing these efforts pay off.

We have reached the end of the Q&A session. I will now turn the call back to Trina Spear, CEO, for closing remarks.

Thank you so much. I just want to say fun fact, there are now more searches for FIGS than there are for scrubs, and that's when you know that you are on your way to owning a category like Kleenex, like Band-Aid, like Jacuzzi, that is where we're headed. So we're going to continue to execute at the highest level, and thank you so much for joining us.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to FIGS' First Quarter Fiscal 2026 Earnings Conference Call.

[Operator Instructions] I will now hand the conference over to Tom Shaw, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us to discuss FIGS' first quarter 2026 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Sarah Oughtred, our Chief Financial Officer.

As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunity or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10-Q we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today, and we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation.

Now I would like to turn the call over to Trina.

Thanks, Tom. Good afternoon, everyone, and thank you for joining us today. FIGS is off to an incredible start to the year, sustaining last year's strong momentum with broad-based strength across all aspects of our business.

Net revenues exceeded expectations, growing 28% year-over-year, driven by accelerating active customer growth. We surpassed 3 million active customers for the first time in our history, an important milestone that reflects the growing resonance of our brand within the healthcare community. Strength was apparent across categories, styles and color, supporting success across all selling occasions during the quarter, including our business as usual days, new product launches and promotional events. Importantly, this performance was driven by continued strength in our core U.S. e-commerce business even as our market expansion drivers of international community hubs and teams continue to scale. Taken together, we believe this is a strong indication that our efforts are not only working but are sustainable.

Bottom line results were also strong, demonstrating the power and resilience of our model. During the quarter, we were able to absorb unplanned fuel surcharges, continue to opportunistically invest across the business and still exceed our adjusted EBITDA margin expectations by 170 basis points.

As we step back and look at the broader picture, we see our business thriving at the intersection of 3 powerful dynamics. First, our brand is differentiated and continues to gain strength through expansive product solutions, even more impactful marketing and a deeper level of connection with the healthcare community. This is what brand leadership looks like, and we are continuing to raise the bar.

Second, we have built a more durable foundation for growth through operational excellence. Throughout 2025, we demonstrated greater discipline and efficiency across the organization, supporting our ability to react to market conditions and deliver top and bottom line upside. And we continue to see the benefits of that work coming through clearly while also layering in new initiatives that are enabling early success in 2026.

Third, we are leveraging structural industry tailwinds that reinforce our long-term opportunity. Healthcare remains one of the most essential and resilient sectors of our economy with strong long term demand, driven by population trends and workforce needs. While advancements like AI have the potential to improve many of the administrative burdens that healthcare professionals face, the industry remains inherently hands-on and human. That dynamic continues to support the replenishment-driven nature of our category and the long-term opportunity for FIGS. Together, these dynamics are reinforcing our leadership position and giving us confidence in both near-term momentum and long-term opportunity.

Let me spend some time on our year-to-date efforts and what to expect in the quarters ahead. Starting with product, which remains one of the most important ways we create and sustain our competitive moat. Our strong performance starts with the incredible momentum in our core scrubwear category, and we are highly focused on extending our leadership position by developing impactful new franchises across silhouette, fabrication and overall design. For example, we continue to lead the adoption of differentiated pant silhouettes.

These trends have resonated broadly within apparel, and we have translated them authentically into our category. Importantly, we are delivering thoughtful head-to-toe coordination as these looks evolve, providing more complete and versatile solutions for healthcare professionals. At the same time, we are driving broader use cases through our fabrication strategy.

Our FORMx fabric continues to gain traction with the fabric mix nearly doubling year-over-year and supported by strong demand across our ongoing expansion of color options. We are also excited about the continued rollout of our highly durable FIBREx fabrication, which we plan to spotlight more meaningfully in the second half of the year.

Beyond scrubwear, we saw our strongest non-scrubwear growth in the past 3 years. This reflects our ongoing focus on building a true layering system and expanding our presence across the full range of needs for healthcare professionals. From underscrubs to outerwear to lab codes, we are approaching each category with clear strategies designed to solve real-world problems and elevate the experience. Collectively, these efforts are expanding the role FIGS plays in the daily lives of healthcare professionals and extending our leadership position.

These efforts are continuing in Q2 as we deliver a new wave of product excitement to the market. This starts with color, always a powerful driver for the brand, we are increasingly coordinated and intentional in how we approach it. Our spring color drop in April performed exceptionally well, and we are particularly excited to then bring back espresso, the color that our community has been clear they're dying for. This demonstrates continued operational excellence as we are improving our ability to read trends and react quickly. This includes evolved supplier partnerships and new inventory planning tools that allow us to act more predictably and efficiently based on real-time demand signals.

Beyond color, we introduced new maternity styles for the first time in 3 years, supported by a campaign featuring expecting healthcare professionals from our community. And finally, we continue to create excitement through unique collaborations. Ahead of May 4 and building excitement ahead of the next movie in the franchise, we introduced our latest Star Wars collection, building on our tradition of partnering with iconic cultural brands that resonate within our community.

Turning to brand. We are continuing to set new standards in storytelling, connection and impact. Following our efforts at the Winter Olympics, we are excited to celebrate International Women's Month and debut our new Never Change campaign. This year, Long Anthem continues our important efforts to tell rich human stories that reflect the resilience, compassion and dedication of healthcare professionals. This platform builds on the success of last year's Where You Wear FIGS campaign, which set a high bar for authentic storytelling and community engagement. And we're seeing a powerful response here with the first chapter more than doubling last year's levels across impressions and engagement. We are also continuing to blend impactful digital storytelling with meaningful in real-life moments across key events in the healthcare community.

Match Day in March is one of the most important milestones for medical students, where they learn the residency placement, a defining step in their healthcare journey. We are proud to expand our on-campus presence this year, including celebrations at Howard University, the University of Houston and McGill University in Toronto. These impactful moments serve to create authentic long-term brand relationships at the very start of healthcare careers.

As we speak, we are in the midst of Nurses Week, a hallmark moment for our community that sits at the heart of all we do. Nurses show up day after day the way they always have with an unmatched ability to connect with people and provide the assistance they need. It is only fitting to celebrate their impact through our next chapter of our Never Change campaign. In addition, we are supporting the occasion with a strong product lineup and a range of activations during the week ahead, including an unforgettable branded experience in Chicago and our first Drinkware collaboration with Owala.

Beyond storytelling and engagement, our brand is deeply rooted in advocacy and the impact we aspire to have on the healthcare community. This is not a separate initiative. It's embedded in everything we do. Our close connection with healthcare professionals gives us unique insight into the challenges they face, and we are committed to using our platform to drive meaningful change. We recently announced the Austin Humans Foundation, the first nonprofit dedicated to directly supporting healthcare professionals across the challenges that shape their careers. This initiative allows us to scale our efforts, accept outside contributions and provide grants directly to healthcare professionals who most need them.

In Q1, we announced the Healthcare Human Act, the first federal bill developed from the ground up by FIGS. Only half of healthcare professionals feel fairly compensated, the lowest score of any industry, which perpetuates dangerous understaffing across the workforce. Our bill directly addresses this challenge by providing a federal tax credit of up to $6,000 per year to help address financial strain across the healthcare workforce. We were also encouraged to see the reauthorization of the Dr. Lorna Breen Act in Q1, an effort we helped drive over the last few years to strengthen mental health and well-being support for healthcare professionals. These are positive steps, but we know there's much more work to be done.

In a few weeks, we are organizing our largest effort ever on Capitol Hill. As part of our new long-term partnership with Noah Wyle, we are excited to have him once again join us in D.C. to help move the needle on the policies that are most needed to transform the experience of being a healthcare professional. Noah has devoted his extraordinary career to shaping the real stories of healthcare professionals that makes them feel seen, and we could not be more excited to keep partnering with him in the years ahead. This is how we show up for our community, not just through product and storytelling, but through action that has real impact on the lives of healthcare professionals.

Turning to our market expansion. We continue to see strong momentum and significant opportunity. In our international markets, strong execution and demand supporting double-digit growth across every region and drove overall international net revenue up 50% year-over-year. Our Go Deep efforts continue to generate strong results in key markets like France and Germany, where localized storytelling and targeted investments are resonating with healthcare professionals. At the same time, our Go Broad strategy remains a highly efficient way to expand our global footprint.

In March, we opened 15 new markets across Europe, followed by an additional 12 markets in Asia Pacific in April. While these markets are small financially in the near term, they represent an important long-term opportunity to bring FIGS to more healthcare professionals around the world. As a result of these efforts, we are now present in 85 international markets, a significant increase from just 32 markets at the end of 2024.

Community Hubs also continue to exceed our expectations and play an important role in our ecosystem. All 5 locations are performing well with our 2 comp stores in L.A. and Philly up significantly. In the near term, our focus is on optimizing our existing fleet, particularly the 3 locations that opened at the end of last year. This includes refining our product assortment, going deeper in core styles and sizes and enhancing the in-store experience. These efforts reinforce our belief that a physical presence serves as a powerful complement to our digital-first model. At the same time, we are investing in the talent and processes needed to support our next phase of growth. We remain on track to open 4 new community hubs in the back half of the year, doubling down on all the early wins across the channel while also applying key lessons to optimally serve the needs of our customers. We see a clear opportunity to increase our pace of expansion in the years ahead and are excited to continue scaling this channel.

Finally, turning to Teams. We continue to make important progress in building this business for the long run. Our focus has been on strengthening relationships with existing accounts while also building a pipeline of higher impact opportunities. And we saw encouraging traction on both fronts during Q1. Building deeper relationships means we are evolving beyond just the transaction and taking a more proactive and collaborative approach to servicing needs. Feedback has been positive with these efforts, which we believe will be a key to driving strong long-term partnerships. At the same time, our pipeline of new accounts is building with strong interest across a wide range of institutions.

We also took an important step forward with the launch of our Team store in March. Integrated into our e-commerce platform, this solution provides a more seamless and flexible ordering experience, helping to reduce friction for our customers. This is an important milestone, but just the beginning. We plan to continue enhancing the platform throughout the year with more robust features that will unlock a broader range of solutions and better serve the diverse needs of healthcare organizations. We are driving solid overall Teams growth today, but more importantly, we are positioning ourselves to unlock a significantly larger opportunity over time.

In closing, we are incredibly encouraged by how we started the year. We are executing at a high level. Our brand continues to strengthen and the structural dynamics of our industry remain highly favorable. Our focus in serving the healthcare community is resolute, and we are thoughtfully investing across the organization to extend our efforts, build even more impact and continue to define and lead the category. This is driving our increased confidence in our performance this year, and we will be instrumental in supporting top and bottom line momentum over time.

With that, I'll turn it over to Sarah to walk through our financial results and outlook.

Thanks, Trina. Our better-than-planned first quarter results continued the powerful narrative coming out of 2025, where we strengthened the foundation of our business and advanced our work to scale our strategic pillars across product innovation, community engagement and market expansion. We believe these efforts are sustainable, unlocking growth opportunities and profitability over time, and we are excited to see our ongoing execution across these measures to start the year.

Starting with the details of our Q1 performance. Net revenues increased 28% year-over-year to $159.9 million and outpaced our outlook, calling for growth in the low 20% range. Similar to last quarter, our performance was broad-based across categories, colors, geographies and channels. We were also pleased with the continued strength we are seeing in cross-selling occasions, including business as usual days and promotional events, both of which contributed upside to our plan during the period. We believe these are great indicators of the underlying strength in our business right now.

As Trina highlighted, active customer growth accelerated to 12% year-over-year, surpassing 3 million total for the first time. This was supported by the ongoing strength we are seeing in both acquiring new customers and bringing customers back to the brand. Average order value increased 4% to $124, primarily driven by higher average unit retail due to pricing actions early in Q1 and favorable product mix. Notably, we saw less price elasticity than planned, which we believe underscores the ongoing value and relevance of our assortment.

In addition to strong AOV, we think it is also important to note strong purchase frequency as customers are coming back and transacting more often. Growth across customers, order per customer frequency and AOV are a powerful combination and support gains in our trailing 12-month measure for net revenues per active customer. This measure strengthened again during the period, posting 6% growth to $220, which is the highest level recorded since Q4 2022.

By category, scrubwear grew 27%, representing 79% of net revenues for the period. The theme of balanced growth was prevalent across the categories with success across both core and limited edition styles and colors. Growth was also supported by strategic inventory investments as we have sharpened our buys to ensure deeper positioning in core styles and to drive higher in-stocks. Wider leg pant options continue to be a great story, and we are driving depth across core and new options. FORMx has steadily gained traction as a great low-impact fabric solution and expanded color options sold through quickly at the beginning of the quarter. And our durable FIBREx fabrication debuted as part of the Winter Olympics collection, expanding our range of solutions for healthcare professionals.

Non-scrubwear increased 31%, representing 21% of net revenues and posting the strongest growth in 3 years. Underscrubs and outerwear continue to drive strong growth as customers increasingly look to build head-to-toe wardrobes. We're also excited with how healthcare professionals are responding to our expanded range of accessories, including limited edition styles for events like Lunar New Year and the Olympics as well as expanded collections in bags and loungewear. We are excited to increase our focus and coordination across all these areas as we move forward.

By geography, U.S. net revenues increased 24% to $131.6 million, while international net revenues increased 50% to $28.3 million. In the U.S., we are driving strong traffic and conversion to our business as we deliver a combination of great products and highly impactful brand moments. We are also sharpening how and where we deliver these stories to better engage healthcare professionals and drive marketing efficiency. At the same time, we are planning more functionality and resources to our digital platform to reduce friction and drive confidence in buying decisions.

International growth was equally strong across both new and returning customers, underscoring our success in driving awareness, localizing the brand and scaling the opportunity. Notably, the overall growth contribution from our most recent go broad market expansion was minimal for the period, highlighting the strong performance across our more established markets. Considering geopolitical factors, growth rebounded strongly in Canada following last year's sentiment-driven softness, though did see sequentially slower yet still strong growth in the Middle East given the ongoing conflicts in the region.

Gross margin for Q1 expanded modestly, up 10 basis points to 67.7% and in line with our outlook. We experienced sequentially higher tariff pressure during the period as expected as well as less favorable product mix. These headwinds were offset by positive impacts from pricing and our ongoing efficiency efforts.

Our selling expense for Q1 was $36.4 million, representing 22.8% of net revenues compared to 26.2% last year. We continue to make significant progress optimizing our fulfillment center since the Q3 2024 opening and Q1 results demonstrate both meaningful fixed and variable cost leverage. Additionally, our outbound carrier diversification strategy continued to yield year-over-year savings despite recent parcel surcharges.

Marketing expense for Q1 was $29.5 million, representing 18.4% of net revenues, up from 14.5% last year. As planned, the higher marketing rate largely reflects costs associated with our Winter Olympics campaign. Additionally, we opportunistically invested in several incremental areas, including the establishment of a formal partnership with Noah Wyle. Partially offsetting these investments and driving upside to plan, we experienced greater net revenue leverage and digital tax efficiencies.

G&A for Q1 was $37.9 million, representing 23.7% of net revenues compared to 27.1% last year. The lower G&A rate was primarily due to net revenue leverage and lower stock-based compensation expense. Relative to plan, we did incur accelerated depreciation related to the earlier-than-planned timing of our headquarter move as we consolidate our location within our existing property. In total, our operating margin for Q1 was 2.8% compared to a loss of 0.2% last year, while our adjusted EBITDA for the period was 8.7% compared to 7.3% last year. Net income for the quarter totaled $6.3 million or diluted EPS of $0.03 compared to a net loss of $100,000 last year or breakeven diluted EPS.

On our balance sheet, we finished the quarter with net cash, cash equivalents and short-term investments of $277 million. Inventory increased 6% year-over-year to $139.4 million. Improved supply and demand processes and discipline along with top line upside continues to support overall inventory efficiency even as we continue our focus on strategic buys across core goods. We remain on track with our target of reducing inventory days to approximately 200 by year-end.

On the capital allocation side, share repurchases during the quarter under our ongoing repurchase program totaled approximately $8.8 million at a weighted average price of $15.38 per share, with approximately $43 million available for future repurchases under the program. Capital expenditures for the quarter were $2.4 million, primarily related to software capitalization and leasehold improvements with larger community hub-related outlays planned later in the year.

Now turning to our outlook. Our outperformance in Q1 and the overall momentum across the business are driving greater confidence in our top and bottom line outlook. Importantly, this underscores the strength of our model as we are able to leverage improving demand to absorb unplanned costs, continue investing and expand profitability. Certain factors like tariffs and the extent of oil-related pressures require a flexible planning framework, but we believe we have appropriately factored in these dynamics with our increased guidance.

Our full year 2026 net revenues are now expected to grow 14% to 16%, ahead of our prior outlook of 10% to 12% growth. This includes both our Q1 outperformance and greater confidence for the balance of the year, even as we embed prudent caution given some of the pressures and uncertainties consumers are facing. Our confidence is supported by the strong fundamentals of the healthcare industry as well as the trends we are seeing with active customer growth, the breadth of demand and growing brand engagement.

For the second quarter, we are planning for net revenue growth to be up in the low 20% range year-over-year. This is a similar setup as we outlined last quarter, where quarter-to-date trends are strong, but we still have an important stretch ahead. For Q2, this includes this week's start to Nurses Week, a significant period for our brand and one where we are taking a more measured promotional approach relative to last year. Looking at the second half of the year, we would note that comparisons build each quarter, so we are still focused on driving growth against last year's blockbuster Q4.

On to gross margin, where we continue to expect a modest full year improvement from the 66.5% level achieved in fiscal 2025. Tariffs remain a dynamic variable to forecast. Our prior outlook assumed 15% global tariffs for the balance of the year following the Supreme Court's ruling in February. However, since we made this assumption, only the Section 122 tariff of 10% has been in effect. Our updated outlook assumes this 10% rate remains in effect through the July 24 deadline while also continuing to reflect our original 15% rate assumption thereafter for the balance of the year. This results in slightly less tariff headwinds than we originally planned for the year.

We are also factoring in new gross margin headwinds from higher inbound freight given the surge in oil prices as well as the tariff-related pause in our duty drawback program. These new pressures largely offset the more favorable tariff outlook and keep our gross margin outlook unchanged. Separately, we have taken the appropriate actions regarding refunds of what was paid under the IEEPA tariff, which equates to approximately $20 million. However, with our updated outlook, we have not embedded any of this benefit until we gain better clarity on how and when these refunds will be processed.

Looking at the quarterly gross margin cadence, we expect Q2 to show a modest year-over-year decline from last year's 67% rate. This largely reflects the growing sequential impact of tariffs with the impact of average costing more than offsetting slightly lower rate assumptions. Given the comparisons in the second half of the year, we would expect a more meaningful year-over-year decline in Q3, followed by a large year-over-year improvement in Q4, ultimately yielding more consistent gross margin levels throughout the year.

Shifting over to SG&A. We expect better net revenue leverage will be partially offset by several factors. In selling expenses, we continue to expect the benefit of efficiencies through our fulfillment center as we diversify our outbound carrier network. However, similar to inbound freight pressure, our outbound freight expenses are being negatively impacted by fuel costs. In marketing, while we expect leverage following the outsized Q1 Olympics investment, we have made strategic investments that were incremental to plan. And in G&A, our estimate for stock-based compensation has increased by nearly $2 million, primarily due to stock price appreciation. Again, this shows the strength of our financial model and how a highly leverageable structure can support both higher expenses and solid margin upside.

Overall, we have increased our full year operating margin outlook from between 7.6% and 7.9% to an updated range of between 7.8% and 8%. We've also increased our full year adjusted EBITDA margin outlook from between 12.7% and 12.9% to between 13% and 13.2%. This includes an expected Q2 adjusted EBITDA margin of approximately 13.5%, up from the 12.9% in the prior year period. Below the operating line, we now expect the effective tax rate to be approximately 20%, down from our original 25% outlook and compared to 27.4% last year. The lower expected rate primarily reflects the excess tax benefit related to the magnitude of our recent stock price appreciation relative to incentive compensation grant prices.

Before we open the call for Q&A, I would like to underscore our strong start to the year. We are well positioned to deliver against our updated outlook, leveraging top line momentum to support our growth initiatives while navigating a dynamic external environment. We remain focused on executing against our strategic pillars and are increasingly confident in our road map across product innovation, community engagement and market expansion in the quarters ahead.

We are now happy to take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Brian Nagel with Oppenheimer.

Nice quarter. Congratulations. The first question I want to ask, I mean, look, we see -- we obviously see the results. But I guess as you look at that, the top line momentum, just how your consumer is behaving here, was there anything that shifted from what we saw in the fourth quarter into the first quarter and then what we've seen so far in the second quarter? Is there any underlying dynamics shifting here?

I think what you're seeing, Brian, is just an acceleration, a continued acceleration. We are really executing at the highest level. We're pairing creativity, excitement, innovation with operational excellence. And to your point, we're seeing that on both the top line and the bottom line. Q1, as you know, up 28% EBITDA margin, 170 basis points better than the guide, 140 basis points better than last year. And why is that?

I think it's really 3 things. The first being our product. We're continuing to deliver the best product to meet every need of our healthcare professionals, head to toe across fabric, fit and function. On the marketing side, we're delivering campaigns that are continuously going viral. You saw that again yesterday with our Nurses Week campaign. I think real-time data over 7 million views across all platforms, incredibly engaging with nurses, but even broadly with all healthcare professionals, people -- our community is feeling seen, feeling heard, feeling understood, and that's what this brand has been all about since Day 1. And finally, our industry is incredibly attractive. We're selling replenishment-driven nondiscretionary seasonless products to healthcare professionals that are returning to us over and over again, and you're seeing our repeat frequency up considerably. And so I do think the momentum you're seeing is incredibly sustainable.

I was just looking at the healthcare industry stats. The industry is projected to be the largest industry sector with the largest absolute job growth and the fastest growth rate. So that's really hard, being the largest and the fastest growing at the same time. That is what's happening with healthcare jobs. And you're seeing the headlines that all the employment gains are pretty much coming from healthcare.

So we have a lot to be excited about. We surpassed 3 million customers at the end of the quarter, scrubwear. And this is, like I said, broad-based, scrubwear up 27%, non-scrubwear up 31% U.S. up 24%, international up 50%. And so we're going to keep executing, but really excited to see that it's the core business. It's the fundamental underlying nature of this business that's performing in addition to all of our growth levers, and that's all really exciting.

The follow-up question I have just on the Teams business. I guess someone in the context of that answer. But as we think about the Teams business and the growth from here, is it going to be -- do you envision a grind higher in the size of the business? Or are there going to be -- do you foresee specific near-term steps where that business can start to step function higher?

We're making considerable progress in terms of the Teams business, and we're really focusing on the technology and building the Teams store to serve every different type of healthcare institutions from universities to concierge clinics to hospitals and really understanding their needs and how we can show up for them and solve that with the technology and then also an incredible sales team. That's really not just engaging on that first sale, but also building that relationship over time. And so we've made considerable progress on that front. I think we're a bit away from that, and that's another growth lever to come. The business is growing. We're doing great, but much, much more to come as it relates to Teams.

Your next question comes from the line of Rick Patel with Raymond James.

Congrats on the strong execution here. I was hoping you can unpack the increase in new customers in the U.S. So how much of the growth was driven by reactivating lapsed customers? And how many are completely new to the brand? And as you look ahead, where do you see the most opportunity?

Yes. So within our active customer base growing to -- we're surpassing 3 million active customers now, which is awesome and seeing accelerated growth in that to 12%. And when we look across that customer base, this is the second quarter of double-digit new customer acquisition growth, and that growth is coming from both the U.S. and international. We saw an accelerated growth rate in our redirected customers, and we're also seeing improved performance in retention. So we're seeing growth and acceleration really across all 3 of those, which is continuing to give us proof points on this growth being sustainable and very broad-based.

Regarding the price increase you took earlier this year, you touched on demand being fairly inelastic, which is nice to hear. Given costs have continued to creep up here with freight, do you see room to expand price increases to more SKUs than you started the year with? And then on the flip side, any thoughts on just the promotional cadence here in 2Q and the back half?

Great. So yes, we did take pricing in January on about 1/3 of our styles. We've continued to track elasticity, and we are seeing results that are more favorable than what we had assumed. I think that really speaks to our value proposition. And we've reflected how we're seeing that improvement in sales across our guide for the rest of the year, along with the momentum we're seeing in all other factors of our business. I think pricing is something that we took as this onetime, and we will continue to evaluate it from a point of view on what is the value proposition of that product and what is the appropriate pricing for it. But I think at this time, that was one big move that we made and nothing of the same extent in the near future.

Your next question comes from the line of Adrienne Yih with Barclays.

I guess my first question is -- can you talk about any potential kind of impact that you're seeing with your sourcing mostly in Jordan? And then kind of the derivative call on that is as oil has become an issue from your Southeast contract manufacturers, are you seeing any work in process or any of the kind of current invoices that are coming through, are they passing along those costs to you? Because I know that you don't use cotton, right? Most of your product is in that oil-based format.

My final question is with the marketing that you did, it was obviously top of funnel. Can you talk about the efficacy of that on brand awareness, clearly on customer acquisition. But how should we think about sort of the kind of steady-state customer acquisition costs as we kind of flow off of that?

So as you know, we have great partners in both Jordan and in Vietnam. As we've disclosed, our production was pretty evenly split between these 2 countries last year, driving the vast majority of our overall global supply. We're now a bit more weighted towards Vietnam with only a bit more than 1/3 of our production coming from Jordan. And as tariffs and other geopolitical events have really shocked the macro supply chain system, we've managed very well. We've navigated this with limited operational impact within our supply chain. And I'm proud to say that we've seen no meaningful disruption to date in terms of our production, our timing, our cadence of our launches. And so -- and to the extent there are short-term disruptions, we are well positioned to leverage our dual sourcing capabilities to manage them.

In terms of raw materials, we've locked in our costing through the end of the year. And so we're not -- you're not going to see any pass-through from an oil perspective in terms of materials. We -- Sarah in her prepared remarks talked about the freight impact on that. And then in terms of the brand awareness in CAC, I think the best brands in the world are able to continuously see CAC gain because of the word-of-mouth dynamics, and we've talked about the word-of-mouth dynamics in our business.

So why is it that we can invest so much in our brand? Why is it that we can create these game-changing viral campaigns that people absolutely love and grow so much affinity towards our brand? It is because we continuously get CAC gains in markets where we are more mature. And we take those gains as we continue to scale and we invest in new markets and we invest in top of funnel. And so we're continuously seeing that dynamic, and that is great because that is really a huge leading indicator of not just the next 1, 2, 3 quarters, it's really a leading indicator for the next 10 years, right?

What we're seeing in terms of our search traffic, social engagement, impressions, we're up double, triple digits across the board. And so that gives us just so much confidence that our marketing engine is working, and we're going to continue to double down on it.

Great. Sarah, a follow-up for you. So just a little clarification. The order value was up nicely, yet the product mix shift actually acted as the gross margin headwind. So can you just help us marry kind of those 2 things? Was the AOV largely from price increases and was it on core scrub? So kind of trying to bridge those 2 items.

Sure, yes. So our AOV was up 4%. We did see the majority of that coming from AUR, which was driven by the price increase. It's also coming from mix shift into some of our higher price point items that consists of some of our wider leg pant options, our FORMx, which has steadily gained traction as well as FIBREx, those also have a bit of drag on margins. So as we shift more into those items, that does have an impact on to margin. And so that's how those 2 pieces connect together.

Your next question comes from the line of Ashley Owens with KeyBanc Capital Markets.

Congrats on the 3 million. So maybe on the 2Q cadence, you've called out colors several times that being important for you, Espresso came back but you're also taking that more measured promotional approach for Nurses Week. Just trying to see how we should be thinking about the puts and takes in that low 20s 3Q framework. Is Nurses Week still that potential source of upside for you? Or is the more measured approach a headwind versus last year?

Yes. I would say that the trends that we've seen in Q1 are carrying through into Q2. And at the time of this recording, we're on Day 2 of Nurses Week. We are taking a bit of a more measured approach in terms of our offering, but it is still a very large promo for us, and we're excited and pleased with what we've seen for the 2 days to date. And so we know that that is a big event. It was ahead of us at the time that we are setting our guidance, and we think that the guide is a reflection of where we're at while also keeping in mind that as well as our promo that happens in June is still ahead of us. And also being aware of the Middle East impact and the effect on consumers. So pleased with our trends to date and pleased that we're able to guide in that low 20% range for the quarter.

The last thing I'll just say on promotions. We continue to really be mindful of bringing down our promotional rate. If you look across the consumer landscape, we have one of the lowest promotional rates across the industry, and we continue to look to bring that down and we look to bring that down year-over-year for this year versus last. So it's all really exciting to be able to be performing the way we are with the promotional rate that we have.

Just 2 quick follow-ups. Maybe first on non-scrubwear and the rebound you saw there. I know there were a few different categories called out. But just can you quantify how much of that 31% growth was Olympics-related product that rolls off? And then with international, I know you -- there's been a pretty broad rollout even into the first couple of months of this year so far. I understand that overall growth contribution is going to be minimal for now. But just any context you could provide on a typical revenue ramp for a go broad market in its first year? Or just how long do you expect until these new markets start to become material to the results?

Great. So for on non-scrubwear, so in the quarter, we did have the launch of our Olympics product, which featured our FIBREx. And from a product perspective, that was a small assortment and really happy with how it performed, but it was very small as intended and lived for a short time over the duration of the event. So it's not driving any impact really that's meaningful for non-scrubwear. The 31% is a continuation of our efforts to expand within underscrubs, expand within our outerwear and continue to drive overall outfitting for our HCPs. So we do expect continued growth within non-scrubwear.

Then to your question on international, yes, we've been really pleased with our go broad and go deep strategy. The 50% growth in Q1 after delivering 55% growth in Q4 is really great, and we're continuing to see that really the majority of that growth is being driven by our existing markets. So within Q1, we saw good strength and growth continuing to come from Mexico. We're now in our fourth year in Mexico. We saw really strong growth in Canada. There was some softness there last year. So great to see the double-digit growth in Canada and then continuing to see great growth in the EU driven by France and Germany. And so while our go- broad efforts have allowed us to open many new locations quite quickly, these are very small in the interim here, and we're really setting those up to continue to gain momentum and have a bigger impact probably in 2027 and beyond.

Your next question comes from the line of Matt Koranda with ROTH Capital Partners.

It's Joseph on for Matt. Just wanted to see if you guys can talk about store expansion plans. I believe in your prepared remarks, you cited about 4 stores opening -- or 4 community hubs, excuse me, opening in the back half of '26. I guess, kind of what your recent openings inform you about the expansion as we look out maybe 1 to 2 years and obviously, in the back half of this year? Just any thoughts and anything we should be aware of as we're -- as you guys are ramping up into more community hubs.

Yes. Thank you so much for the question. I am just so excited about community hubs, and I'm so excited about the 4 that we're going to be opening later this year. As you know, it's an incredible opportunity to be with our community, right? Where they are, where they work, where they live, they come in, they feel and touch and experience our product. They learn about our fabrications, they figure out their fit, they talk to our associates and are educated about the brand. Still about 40% of people walking in the door are new to the brand. So it's a really incredible way to bring new healthcare professionals into the fold. It's also a place where our healthcare professionals are learning about our layering system and learning and really deepening their love for us and our love for them, and that relationship is so important.

So what are some of the learnings? I think we need bigger stores. I said last quarter, champagne problems, still champagne problems. If you have a 45-minute wait for a fitting room, that's not ideal. So we need more fitting rooms. We need larger spaces. We're looking at 2,500 to 3,000-ish square feet. We're optimizing the flow. We're optimizing the set wall. We're thinking through the branding elements and really making it the best experience for our community. And so a lot of learnings from Century City, Brittain House and our 3 latest openings from last year, Houston, Upper East Side, and the West Group in Chicago.

Actually, we're doing a really cool event in Chicago for those of you who are there right now, the anti-Pizza Pizza party check it out. So just really, really great excitement, so many learnings that we're able to take and continue to build. And the economics from the 5 that we have are exceeding all expectations. So really, really exciting on all fronts.

Just as my follow-up, you guys mentioned healthcare being the biggest industry growing the fastest. Just anything you can unpack, I guess, as we're looking from March into April, any changes of behavior within that cohort? And then your thoughts on the resilience of this customer cohort that you guys are seeing in 1Q?

Yes. I mean healthcare professionals, they are incredibly resilient. They're the most resilient people on the planet. But I know you mentioned in a different way, but I just love to say that. They are the most amazing people. And what I think what we're doing is something that we've always done is shown up for them with our product, with our marketing, right? How are we connecting with them in a deep way. And so there's still challenges in the industry. It's why we have such an incredible advocacy platform. It's why we built or built the foundation. It's why we're going to D.C. and having this incredible experience. For those of you who are in D.C. on May, oh my God, Todd is going to get so mad at me. I keep inviting people to our rally, but so I won't talk about that yet. But that's exciting. It's called Awesome Humans on the Hill.

We've done that for a number of years now. And so -- there's still challenges in the industry. There's staffing shortages. There's stress in the system. But how do we continue to show up for our community that really this industry has just structurally -- structural advantages on a whole host of fronts. You need your uniform to go to work. You need to replenish your uniform. It's a nonseasonal industry. And so all of these dynamics are really fueling what we do in terms of our product and our marketing.

I can add on some of the slices across the business in terms of how we look at the consumer. So when we look at our occupational data, we're seeing strong growth year-over-year across all of the occupations, but particularly encouraged by the growth that we're seeing in nurses and students. When we look across our spend quintiles, we're seeing stronger growth with our higher spend quintiles, which makes up the majority of spending. And this is our most engaged customer, really showing that our brand efforts to deepen brand love and engagement is working. And then I think something else that's relevant is when we look across the income cohorts, we've not seen a meaningful change across each of the different income sizes we look at and actually seeing slightly higher growth -- sorry, we're seeing some growth at the lower incomes. And I think this really speaks to the ongoing value proposition and strength of our brand.

Your next question comes from the line of Bob Drbul with BTIG.

Congratulations. I guess 2 questions that I have is can you just give us an update on your -- the sizing initiative, sizing and fit, how that's going? And I'd be curious in terms of like any metrics you could share on in-stocks, out of stocks, like the progress that you're making, those would be helpful.

Yes. I mean, I think we've made incredible progress on our Fit initiative. We are on the other side of that, where when you come to FIGS across the layering system, if you are a particular size, that will fit you in a similar way across our product line, which is really exciting. And so I'm really excited to be on the other side of that.

In terms of in-stock, our goal is to have all of our core product. We have about 15 core styles that core product needs to be in stock all year round so that you can get your uniform at any time. And then we drop -- as you know, we drop new styles and drop new colors, and that's actually aimed to sell out in a relatively short period of time. You want the latest color, the latest style, and that's what kind of drives you back. And so we have 2 parts of our merchandising strategy, the core always in stock and the drops kind of meant to kind of come and go. And so that's how we think about it. A great question, Bob.

Your next question comes from the line of Dana Telsey with Telsey Group.

Nice to see the progress. Trina, as you think about the product innovation and the newness that's driving demand, any call-outs of what we should be looking for, for the balance of the year? And is World Cup at all an activator for you? And then lastly, Sarah, on the puts and takes of the margins as we go through the balance of the year, anything on comparability that we should be watching for and the cadence?

In terms of the innovation and the newness, we're continuing to bring just new silhouettes and new fabrications that are really resonating. You saw that. You're seeing that with our FORMx fabric. We launched FIBREx as part of our Olympics drop. We're bringing that back. It's an incredibly durable but lightweight fabrication that really has resonated with the community. And then you're seeing it just a variety of silhouettes and seeing that we really understand their needs, not just from a fabrication standpoint, although that's super important, but also from a -- like really understanding where are they putting their tools, where they -- what types of pockets are needed and the placement of those pockets. And understanding at a very detailed level, the needs enables us to bring true innovation to our community.

Then in terms of the World Cup, that's something that we're looking at. No product plan as part of that, but obviously, an exciting time in the world and something that we always look to align ourselves with important cultural moments. So you'll see something from us on that front.

For your question on margin, gross margin. So we expect full year gross margin to be up modestly year-over-year from the 66.5% level that we had in fiscal 2025 and many puts and takes. So we have the continued tariff pressure. We have also picked up added pressure on inbound freight due to rising fuel prices and also needed to take a pause in our duty drawback program. And then we have the impact of our pricing as well as cost mitigation and some of our operational efficiency efforts that helped to offset some of those pressures.

So we did see Q1 up 10 basis points year-over-year. We've guided for Q2 to be down modestly year-over-year, and that's really due to the continued step-up of tariff pressure into the quarter. And then as we look at our other quarters, so for Q3 last year, the rate was quite high due to some favorability of our returns processing. And so we do expect a normalization of that. So we expect to see a decline in gross margin rate in Q3. And then recall, in Q4 last year, we had the onetime inventory write-off, and so we will be comping against that. So expect a larger year-over-year improvement in Q4, ultimately yielding more consistent gross margin levels throughout the year.

Our last question comes from the line of Nathan Feather with Morgan Stanley.

Congrats on the strong quarter. Two on my end. First, have you seen any difference in how consumers across income brackets are responding to kind of the increase in gas prices you've seen over the past few months?

Second, on your fabrication strategy, encouraging to see the traction you've had here. I guess, as you think over the next 2, 3, 4 years, what's kind of the right number of fabrication? How much do you think about those as being incorporated into the core SKU count versus driven more for some of the kind of limited time exclusivity?

Great. So in terms of the impact on our consumer, I mean, at this point, we've continued to see continued strength across all prices of how we look at our consumer, really small, probably noticed a bit of a pullback in our APAC region. They are more sensitive and seeing larger impact from the increase in fuel prices, but that does not have a meaningful impact on our overall performance. So we remain really resilient, and that is in the near term. So we have really thought about what could be a longer-term impact, and that informs partially how our guide is positioned for the rest of the year, just knowing that, that can be a pressure on spending for the consumer into the back half of the year.

Yes. I think your question is around how we think about the future state of our assortment and fabric and what's core and what's limited edition.

I think at the core of what we do, we're always innovating. And we have this incredible feedback loop with our community to understand what they want, when they want it. And so that informs how we create, how we create product for them. And it's a balance. It's a balance of the art and the science. We're reacting to trends a bit, but it's more -- we're a uniform company, right? We're a function company, not a fashion company. And so we're able to really test and learn and understand them and deliver what they need and then build a strategy and assortment around that. That goes to fabrics, silhouettes, color, all aspects of what we do and then across the layering system. And so I do believe that -- we've never been better positioned, right?

We're leading this industry by miles. And so it's ours to continue to execute on. It's ours to continue to show up for this community and really define what this industry can be in the future, and that's what we're going to do.

There are no further questions at this time. I will now turn the call back to Trina Spear for closing remarks.

Thank you all for joining us. We'll see you soon.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon. Thank you for attending the FIGS Fourth Quarter Fiscal 2025 Earnings Conference Call. My name is Cameron, and I'll be your moderator for today.

[Operator Instructions] I would now like to pass the conference over to your host, Tom Shaw, Senior Vice President of FIGS. You may proceed.

Good afternoon, and thank you for joining us to discuss FIGS' fourth quarter and full year 2025 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com.

Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Sarah Oughtred, our Chief Financial Officer.

As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunity or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in our 10-K we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our shareholder presentation.

Now I'd like to turn the call over to Trina.

Thanks, Tom. Good afternoon, everyone, and thank you for joining us today. We are incredibly excited to have closed out 2025 with such a strong quarter, the culmination of clear strategic focus and disciplined execution that gained momentum throughout the year. Our vision is to be the leading premium healthcare uniform provider in the world by winning the hearts and minds of healthcare professionals. And we have never had greater conviction in the impact our brand can drive.

FIGS reinvented scrubs and after 13 years, our product engine continues to lead and define the healthcare apparel category. In 2025, we delivered improvements across our product engine from function and fit to category expansion and merchandising, and we delivered even more wins through how we inspire our community beyond products. Over the past year, we created the most powerful combination of messaging, connection, and action in our company's history. This progress reflects the collective effort of an extraordinary team, one that we have fortified with exceptional talent, perspective, and heart. Simply put, I've never been prouder of or more energized by our tremendous leaders and partners.

As we look closer at our results, our Q4 performance was nothing short of remarkable. We knew we had an incredible foundation for success coming into the quarter with strong brand heat and operational momentum. We telegraphed these early trends during our prior earnings call, supported by the carryover success of our late Q3 breast cancer awareness campaign and continuing through our business as usual days ahead of the holiday season. Our growing success during these core selling days is one of the best signs of our overall health.

For holiday, we fueled even more success through strong inventory positioning, newness across color and style and impactful marketing, combining for results that dramatically exceeded expectations for the Black Friday, Cyber Monday period. And we are excited to keep this strong momentum going for the balance of the quarter as we sharpened our focus on full price selling.

All told, Q4 net revenues grew at our strongest quarterly rate in more than 4 years, surging 33% and surpassing $200 million in a quarter for the first time in our history. This growth was driven by an impressive acceleration in active customers, jumping 5% sequentially and 9% year-over-year. At the same time, we experienced strong productivity gains across nearly every selling occasion as well as record AOVs driven by healthy trends in AUR and UPT, a superlative quarter all around.

Our Q4 performance punctuated full year net revenue growth that returned to double digits for the first time since 2022, and exceeded our initial outlook by nearly $90 million. We also had 2 other big milestones with scrubwear crossing the $0.5 billion mark for the first time and our international business surpassing $100 million. Our success was not limited to the top line. Showing the power of our model, we paired soaring net revenue growth with strong profitability, overdelivering our original full year adjusted EBITDA margin target by over 200 basis points. And we did this even while absorbing the impacts of tariffs and our Q4 action to write off pockets of older inventory.

Finally, we built a record net cash and investment position of just over $300 million, even as we stayed on the offense with key investments across the company. It's important to reflect for a moment on how we reached this critical inflection point. The COVID pandemic created a truly unique environment where healthcare professionals were stretched beyond their limits. The need for scrubs was paramount and demand spiked. Once the pandemic eased, closets were stocked, which we believe led to an overhang impacting demand. At FIGS, we navigated through these changes by calibrating our operational framework while doubling down on the game-changing products and brand connection that we knew healthcare professionals love and that we were truly uniquely positioned to deliver. And with the COVID overhang now behind us, we're thrilled to see our strategies pay off and position us for even larger opportunities ahead.

The structural advantages we see in healthcare remain firmly intact with the growing needs of an aging population and ongoing focus on wellness and aesthetics and an industry in need of support so that it can keep up with the outsized demands of both patients and the labor force. This dynamic was on full display with the January jobs report, where the healthcare and social assistance industry powered nearly all the gains in the labor market with 130,000 jobs added. This all bodes well for strong sustained demand for FIGS.

Looking back, it's clear that we've expanded our leadership position, capitalizing on the opportunity to widen the moat and better unlock the powerful dynamics that have been there all along. We believe the onus is on us to sustain and extend this edge. Our strategic house framework governs how we operate our business and expand on our mission.

Our success is measured against 3 strategic priorities: product innovation, community engagement, and market expansion. A year ago on this call, we outlined a similar set of priorities designed to better serve our community. This continuity is intentional. It is shining through in our performance, and it reflects conviction that we remain on the right path forward.

Let's now go deeper into these priorities and how we plan to measure progress in 2026. Starting with product innovation. Our efforts in 2025 focused on building a repeatable and scalable product foundation. In practical terms, that meant adding discipline and focus across all facets of the product engine, delivering impactful newness, shortening development cycles, driving calendar rigor, and improving FIGS. We're excited to see wins across the board in all of these areas.

In 2026, we plan to leverage that strong framework to up our game even more. First, we are elevating our core through fabric innovation. This year, we plan to have 3 fabric solutions in scrubwear to address a range of needs. This starts with our hallmark FIONx fabrication designed as our versatile everyday solution. We also added FORMx in 2025 to emphasize stretch and comfort and have been encouraged by the growing love many have shown for it. And in conjunction with the Winter Olympics, we introduced FIBREx to emphasize structure and durability, and we are excited to expand this line as we move deeper into the year.

Second, we are continuing to build out the layering system. We have seen success in moving beyond scrubwear with head-to-toe solutions on shift and off, and you will see expanded efforts this year in areas like underscrubs, outerwear, lab coats, compression socks, and loungewear.

Finally, with a sharper strategic focus on long-term product planning, we are developing new categories for beyond 2026. We are excited with our team's efforts to develop a more robust and integrated development process and are actively looking at several categories that can expand on our existing work to serve healthcare professionals in new and differentiated ways.

Now on to community and engagement. Building real connection with healthcare professionals has always been at the heart of FIGS. It is why we exist and it is why we continue to lead this industry. In 2025, we created some of our most meaningful and memorable top-of-funnel moments to date from our viral International Women's Day and Nurses Week campaigns to our collaborations with Noah Wiley in Washington and at the Emmy to our breast cancer awareness campaign, all which resonated deeply within our community. I highly encourage you to check out the sizzle reel linked in the shareholder presentation we issued today to experience the incredible energy we've built across the brand throughout the year. We expect that momentum to continue in 2026, as we expand our reach and deepen the connections that matter most to our communities.

We are proud to begin the year by continuing our support of the Team USA medical team at the Winter Olympics, renewing our belief that it takes heart to build bodies that break records. We celebrated the awesome humans behind Lindsey Vonn's return to the world stage 7 years in the making. Her journey reflected unmatched courage, grit, and perseverance, something the world saw firsthand and served as a powerful reminder that no athlete ever stands alone. In moments of both triumphs and challenge, it is the medical community that shows up with expertise, care and heart. That is the community we are honored to stand alongside. That same perseverance lives in healthcare every single day. Healthcare professionals show up with purpose and humanity regardless of the outcome through wins and losses, progress, and setbacks. Their commitment to putting others first does not change even when the work is hard or unseen.

This truth anchors our upcoming Never Change campaign, which will guide our storytelling through 2026. We see Never Change as a natural evolution of our Where Do You Wear FIGS campaign in 2025, which resonated deeply by capturing both the breadth of healthcare and the deeply personal journeys within it.

Moving forward, we have designed our platform with greater flexibility, so we can show up across more moments throughout the year that truly matter to our community. The first Never Change campaign focusing on women in medicine is scheduled to launch next week ahead of International Women's Day, and we could not be more excited. We are also continuing to expand how we activate and support our community.

When we center the world on the impact made by healthcare professionals and tell their stories, we strengthen the long-term impact of our brand. You will see FIGS continue to show up across key moments in healthcare and be a leading force in advocating for them.

Finally, we are investing in how we serve our customers more personally and meaningfully. Our D2C model has always kept us close to our community, and we will continue to test, learn and refine our personalization efforts this year to create more relevant and thoughtful experiences. We are also excited to keep evolving the FIGS app, which we are positioning as our most elevated digital experience built to drive the ultimate engagement within our healthcare community.

Our third strategic priority centers around market expansion. We are proud to have reached a record 2.9 million active customers globally in 2025, but know that's still just a fraction of the global healthcare community. As we drove the bulk of last year's success in our core businesses, we are also making important strides in our 3 market expansion opportunities, international, our TEAMS B2B business and community hub. Starting with international, where we continue to execute our go deep and go broad strategy for market development. This framework prioritizes how and where we invest in areas like community engagement and localization, while also leveraging technology for more efficient market expansion. And the success of this strategy was on full display in Q4, with international net revenue growth accelerating to the highest level in more than 2 years at 55% year-over-year.

With our go-deep markets, our strategy spans some of our more established markets as well as those with higher market potential. Key markets like Canada, Australia, Mexico and the U.K. are further along the journey as we look to match the incredible brand experience established in the United States. Other countries with high potential are earlier in development, and we are investing strategically there to build awareness and consideration. Examples include South Korea and China, both of which we are excited to enter in Q4. And while we're taking a longer-term view of success, we are encouraged by the early signs across the broader Asia Pacific region.

With our go broad markets, we are leveraging newly developed e-commerce functionality to accelerate market entry strategies. These improved capabilities are designed to drive efficiency and localization at a regional level, opening untapped opportunities to serve more markets and redefine expectations. These efforts were instrumental in nearly doubling our total market reach in 2025 to 58 countries, highlighted by new launches across the Middle East and Africa as well as Latin America. As we look to 2026, we expect to surpass 80 total markets, led by a deeper focus across Europe and Asia Pacific planned in the first half of the year.

Moving on to TEAMS. In 2025, we took a great foundation and positioned it for scale through new leadership, investments in our team and the development of our go-forward strategy. This strategy centers on building deeper relationships with healthcare organizations and operating as an even more embedded partner to help them invest in their teams. We are prioritizing higher impact growth accounts. And with more resources and focus, we are seeing early success.

In 2026, we're excited to roll out the next evolution of our TEAMS Store experience. This platform is designed to give organizations greater flexibility and functionality to purchase in ways that work best for their teams, delivering a seamless self-serve experience for administrators and employees. Importantly, this functionality will also expand access to the FIGS assortment and support our international TEAMS customers, which we expect will unlock meaningful new growth opportunities over time.

Finally, on Community Hubs. We ended 2025 with a flurry, expanding our small fleet of retail locations to 5 following openings in New York, Houston, and Chicago in Q4. As we strive to meet healthcare professionals where they are, we continue to see hubs having an early impact in reaching new customers, driving higher LTV and expanding the impact of our ecosystem. Our first focus this year is to continue optimizing our 5 existing hubs. These efforts include further refining assortments, store flow, and fixtures, standardizing in-store operations and driving thoughtful community activation. We are also implementing a store development engine to help drive how we strategically map out, design and build our future community hubs. Leveraging these dynamics, we plan to expand our presence by opening our next 4 locations in the second half of 2026.

Overall, we are in a powerful position to harness our brand momentum, build on our strengthened executional foundation and confidently pursue the opportunities that lie ahead. These actions position us to approach $700 million in revenue this year, a great stepping stone to our $1 billion aspiration and beyond. We also plan to continue rebuilding our bottom line while continuing to invest. This means at least holding our adjusted EBITDA rate in 2026, even adjusting for last year's inventory write-off, inclusive of this year's Olympic spend and assuming tariff impacts remain in effect. Importantly, this margin target is substantially higher than the commitment indicated on our last call. And finally, our capital allocation plans will continue to prioritize growth opportunities across the business while leveraging our ongoing share buyback program to be opportunistic and help offset stock dilution.

In closing, we entered 2026 with a clear sense of direction and purpose, confident in the progress we've made and the foundation we've built. We remain deeply grateful for the opportunity to serve a community that continues to inspire our work every day.

With that, I'll turn the call over to Sarah to review our results and our 2026 financial plan.

Thanks, Trina. Our strong fourth quarter outperformance demonstrated both the sustainable power of our brand and the increased sophistication in how we deliver greater impact to more healthcare professionals. We believe the important foundation work we have undertaken across the business positions us to unlock stronger growth and profitability in the years ahead.

Diving into our Q4 details, net revenues increased 33% year-over-year to $201.9 million, significantly ahead of our outlook. We were positioned for a strong Q4 as the culmination of our extensive efforts and execution across product and marketing drove tremendous brand momentum into the quarter. Adding fuel to this momentum, our Black Friday, Cyber Monday strategy helped generate substantial upside in our business, and we carried this momentum through the balance of the quarter as we moved past the holiday promotional period. Importantly, our performance in Q4 came despite our deliberate plan to pull back on overall promotions, including a reduction in the number of promotional days and a lower discount rate for the period.

From a measurement standpoint, average order value increased 9% to $126, primarily driven by increases in both average unit retail and units per transaction. Active customer growth accelerated to 9% year-over-year after posting consistent 4% growth in prior quarters. This drove our active customer count to a company record of over 2.9 million. Encouragingly, we saw meaningful improvements across our customer cohorts, including accelerated growth in new customers and resurrected customers as well as a meaningful increase in retention. Our trailing 12-month measure for net revenues per active customer strengthened, posting 4% growth in the period to $216.

By category, scrubwear surged 35%, representing 77% of net revenues for the period. Growth was strong and well rounded, continuing to benefit from many of our recent merchandising efforts and strategic inventory investments. Color continues to play an important role, and we drove impactful seasonal pallets and optimally aligned launches with key calendar moments. Both carryover and new limited edition color offerings resonated well while also contributing to strong growth with our core offerings.

Across styles, we continue to see success with our investments in our wider life options, including core styles like the Isabel as well as new limited edition offerings. We are also pleased with the growing momentum of our FORMx fabrication since its early 2025 debut. Non-scrubwear increased 26%, representing 23% of net revenues. Underscrubs continue to be a great opportunity, and we remain encouraged with our recent expansion across our Salta, Mercado and Grid styles. Outerwear posted strong growth led by our high-pile bombers, and we are even more excited with how this category is planned to evolve later this year.

Category expansion and strength was also apparent across a number of emerging opportunities, including bags, loungewear, and our Archtek compression socks. By geography, U.S. net revenues increased 29% to $164.2 million, while international net revenues increased 55% to $37.7 million. Encouragingly, both U.S. and international growth were supported by balanced performance across new and returning customers.

On the international side, while we added key long-term markets like China and South Korea during the period, the majority of growth came from existing markets, including a sharp return to growth in Canada, triple-digit growth in Mexico and ongoing success in the existing markets across the Middle East, Latin America, and Europe.

Better illustrating the strength of existing markets, our entry into new markets in 2025 impacted our Q4 international net revenue growth by only 500 basis points. Gross margin for Q4 contracted 440 basis points to 62.9%. As expected, we had 2 planned headwinds for the period, including sequentially higher tariff pressure and the lapping of a sizable onetime benefit from duty drawback claims in the year ago period. Partially offsetting these pressures, we experienced a lower discount rate as well as favorable freight costs. While these net impacts were generally in line with expectations, we made the decision to take a $5.6 million inventory write-off during the period, which I will detail shortly.

Our selling expense for Q4 was $42.9 million, representing 21.2% of net revenues compared to 25% last year. Our optimization efforts continue to yield meaningful expense leverage at our fulfillment center, while our team continues to be effective in driving outbound freight mix and rate improvements. Marketing expense for Q4 was $28.3 million, representing 14% of net revenues, up from 13% last year. The higher marketing rate was planned to support production costs for our Winter Olympics campaign, while we also increased investments across digital marketing, international and other strategic initiatives. However, with sales leverage and CAC efficiencies, the overall marketing rate was lower than planned.

G&A for Q4 was $37 million, representing 18.3% of net revenues compared to 23.4% last year. Consistent with prior quarters, the lower G&A expense rate was primarily due to meaningful net revenue leverage and lower stock-based compensation expense. In total, our adjusted EBITDA for Q4 was $26.7 million with an adjusted EBITDA margin of 13.2% compared to 13.9% last year. Net income for the quarter was $18.5 million or diluted EPS of $0.10 compared to net income of $1.9 million last year or diluted EPS of $0.01.

Recapping the full year, net revenues reached a record $631.1 million, an increase of 14% year-over-year. Gross margin contracted 110 basis points to 66.5%, largely due to the 120 basis point headwind from tariffs. Operating expenses leveraged to 60.5% of net revenues compared to 67.2% in the prior year. This sharp expense rate reduction primarily reflected the $16 million year-over-year decline in stock-based compensation as well as improved fulfillment efficiencies in our selling lines. Adjusted EBITDA margin was 11.8% as compared to 9.3% in the same period last year.

On our balance sheet, we finished the year with a record net cash, cash equivalents and short-term investment position of $300.8 million. Inventory increased 11% year-over-year to $128 million or up 7% on a unit basis with two important dynamics. First, our investments to support product introductions and go deeper into key styles and colors were key to supporting the strong upside we generated in Q4. We also normalized the higher level of in-transit inventory experienced at the end of Q3, even as the impact of tariffs increased quarter-over-quarter. Second, and separate from these actions, we took a $5.6 million write-off during the period related to broken and aged inventory that had accumulated over a number of years. This action, along with our improved rigor around our supply and demand processes, puts us in the best inventory position we have been in from an aging and quality perspective. Overall, we expect to make additional inventory management progress throughout 2026, and position inventory days closer to 200 days.

On the capital allocation side, we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program. Capital expenditures for the year were $8.2 million, primarily related to the addition of 3 new community hubs.

Now turning to our outlook. Our overall approach to our outlook balances our ongoing enthusiasm across the business with a desire to remain prudent in this consumer environment. Additionally, with an evolving tariff environment, we are incorporating the U.S. administration's latest announcement that call for 15% global tariffs and are not contemplating any relief from previously paid tariffs. While the tariff environment likely remains fluid, we are adamant that the strategic changes we have made across our business are appropriate and durable as we look at our long-term opportunity.

Now on to fiscal 2026 details, where we expect net revenues for fiscal 2026 to be up 10% to 12% year-over-year. As we build upon our product road map and marketing engagement efforts from 2025, we expect sustained active customer momentum to be a significant driver of our growth in 2026. We also wanted to frame up the expected impacts of pricing and promotions. Considering our pricing action implemented in early January and informed by our early elasticity read, our full year outlook assumes only a modest net revenue benefit from pricing. We expect pricing to result in higher AURs, though largely offset across UPTs and order frequency. Finally, given our efforts last year to reset our promotional cadence, we expect relatively consistent year-over-year positioning in 2026.

As we think about the cadence of the year, we expect strong first half net revenues growth, particularly with strong demand trends continuing year-to-date. As such, we are planning for Q1 growth to be up in the low 20% range year-over-year. Comparisons will build in the second half, though we still see the opportunity for driving growth against the strong Q4 performance from 2025.

On to gross margins, we expect full year gross margins to be up modestly year-over-year from the 66.5% level in fiscal 2025. Inclusive of 15% global tariffs, the largest factor weighing on results is the planned unmitigated tariff impact of approximately 280 basis points on top of the 120 basis point impact incurred in fiscal 2025. Offsetting this pressure, we expect to see the benefit of pricing, improved product costing and favorable returns. Additionally, we expect some full year benefit as we lap last year's inventory write-off in Q4. For Q1, we also expect a modest year-over-year increase in gross margin from last year's 67.6% performance. Notably, with the negative impact of tariffs continuing to build to start the year, we expect Q1 gross margin to be the highest quarterly rate of the year.

Looking at expenses, we expect total SG&A leverage for the full year, reaching the lowest percentage of net revenues in the past 6 years. In selling expenses, we expect full year leverage will be driven by continued efficiency efforts with shipping costs at our fulfillment center. In marketing expenses, we expect the Q1 Olympics investment as well as support of our market expansion strategic priority will drive a moderately higher expense rate for the full year. In G&A, we expect some expense leverage given a more modest reduction in stock-based compensation to approximately $25 million. Overall, we expect full year 2026 operating margin of between 7.6% and 7.9% compared to 6% in 2025.

We believe it is important to begin highlighting this GAAP measure as our stock-based compensation impact continues to normalize. Importantly, this would be our best operating margin performance during our time as a public company. Our full year 2026 adjusted EBITDA margin is expected to be between 12.7% and 12.9% compared to 11.8% in 2025. For Q1, we expect adjusted EBITDA margins of approximately 7%, largely reflecting the outsized marketing expenses for the period. Below the operating line, we expect the effective tax rate to be approximately 25%, down from 27.4% last year as we continue to drive improved pretax income, combined with an additional reduction in nondeductible stock-based comp.

Looking deeper at our capital allocation plans, we entered 2026 in an incredibly strong financial position. We do anticipate a step-up in capital expenditures this year to approximately $17 million as we invest across community hubs, system upgrades and at our headquarters. Outside of investments, we plan to use our share repurchase program to be opportunistic in the market and help offset stock dilution.

Before we open the call for Q&A, I want to reiterate what an exceptional year this has been. Our disciplined execution across the organization enabled us to accelerate growth while delivering meaningfully stronger profitability. Just as important, the action we've taken positions us for durable long-term success in a growing and important industry. We believe the brand has never been stronger, and we look forward to updating you on our continued progress throughout 2026. We are now happy to take your questions. Operator?

[Operator Instructions] The first question comes from the line of Dana Telsey with Telsey Group.

Congratulations on a tremendous fourth quarter and year. Very good to see the progress. Can you talk a little bit about the flow-through from the just completed Olympics, what you learned there? How did the product do? And then also the strength of the community hubs, how many you're planning to open this year and how you're thinking of that contribution to top line and margin?

Sure. I can kick it off. Thank you so much, Dana. It was definitely a great quarter, a great year. So yes, I was just actually in Milan and Cortina for our Winter Olympics. We were super excited to support an outfit Team USA's medical team during the Winter Olympics. And it was a great way -- it was great for how we showed up and how we supported the team. I think you probably saw it but our campaign really centered around Lindsey Vonn and her medical team. And I think we really illustrated the extraordinary journey that she's been on and how she came back coming out of retirement to come back and compete.

I think we're even bigger -- the bigger story that we were looking to highlight was the story around Dr. Hackett and Lindsey's full medical team and what they did in terms of the heart that they brought to rebuild her body to go out and break records. And she broke a lot of records this past season. And so we're super proud to be a part of her, her story, Dr. Hackett, the entire medical team story.

The product that we brought forth was really incredibly technical. We launched an entirely new fabrication, FIBREx, which was an amazing fabric that's super durable. It works in a variety of different environments, both on shift inside, outside, on top of mountain, which is what you saw with the Olympics. So really incredible product. It was incredibly successful, and we're really excited about continuing to show up in these large ways, top-of-funnel marketing is the story that we've been talking about quarter after quarter over the past year plus now, and you're seeing that investment pay off. You're seeing the investment we've made in product, the investment we made in marketing. You're seeing those -- all of our efforts starting to pay off, and we're really excited about the future.

In terms of Community Hubs, I know you asked about, so we're opening 4 Community Hubs this year. And so I'll let Sarah speak to some of the economics behind that, but we have seen amazing strength in our 5 Community Hubs that we now have. Century City, Philly, Chicago, Houston, New York and a lot of learnings, mostly that they're too small, which is a great problem to have. We call them champagne problems, but I'll pass it over to Sarah.

Yes. So we opened our 3 Community Hubs in the quarter. All of them are exceeding our top line expectations, which is a great way to open with those. We are going to be moving to some larger square footage stores targeting around 2,500 square feet. Really happy with the payback that we're seeing, looking to target those next 4 in 24 or fewer months payback. And we'll also set up our economics that these Community Hubs will be profitable in year 1, accretive to both operating margin and adjusted EBITDA. The 4 stores that we will open in 2026 are expected to open in the back half of the year closer to Q4. So we'll get the run rate of these 3 new stores, the growth of the 2 existing. And then there will only be a smaller revenue impact given that the 4 stores will open more towards Q4 of 2026.

The next question comes from the line of Matt Koranda with ROTH Partners.

It's Joseph on for Matt. Congratulations on a good quarter. Just want to see if you guys can give us a little bit of color on the progression of 4Q and into January. Anything you guys want to highlight in terms of continuation of growth in your international markets or specific pockets within certain products that you guys are seeing?

Sure. Yes, I mean, I think we're continuing to see strong momentum, and it's really exciting. We're building this business the right way, the hard way for the long run. And so a lot of the things we've been discussing with you all, like I mentioned, around our product, around our assortment, around our cadence of launch, around how we are connecting with our community.

We're really connecting on deep levels, both online and off in our Community Hubs. And so it's -- and then international, it's just been incredible to see how our healthcare professionals are engaging with our brand in Mexico, Canada, all across Europe, Australia, our go deep, go broad strategies are working, and we are doubling down on them. And we didn't just see it in Q4, right? We're seeing it through Q1 and you're seeing that in the incredibly strong guide that we're giving you for Q1. And so leading indicators are really important at FIGS, engagement, organic traffic, direct traffic, all of these are incredibly powerful indicators of what our long-term growth will be, and they are strong and positive across the board.

Then just if I could squeeze in a follow-up. Just your orders per active, look like they're growing very nicely, up in the mid-teens. Can you guys talk about what's driving the more frequent purchase behavior?

Yes. So I would say that across Q4, we were really pleased with both growing our average customer base that really came from growth in new customers, growth in our resurrected customers and also a decline in our churn or an improvement in our retention. We also saw really great growth in AOV. And then on top of that, we also saw a really strong improvement in orders per customer. And I think it's really reflecting everything that we laid out for Q4, which was really at the forefront with our product and our marketing.

We provided excellent marketing campaigns that really resonated with our customers, and we had a really strong product assortment. And we saw the strength really throughout the quarter. Really great to see that overall broad-based improvement across all metrics.

The next question comes from the line of Brian Nagel with Oppenheimer.

Congratulations. Great quarter. Great year. The question I want to ask, clearly, sales momentum built throughout '25 and then culminate here in the fourth quarter with a significant inflection stronger. So Trina, in your prepared comments, you talked about like kind of the post-pandemic dynamic and some of those pressures easing. So as you look at the sales acceleration, how much is it do you think with the specific efforts that FIGS has taken on the product side, the marketing side versus maybe some easing of those sector pressures?

It's both. I think, first and foremost, it comes down to execution. We have an incredible team, and we've been working hard to really invest across the business. And like I said, we're doing it the hard way, the right way. We've dug deep on creating an incredible assortment that aligns with our community.

We've put together some of the most incredible campaigns, what you just saw with the Olympics, but also what we -- the work that we did with Noah Wyle for the Emmy's, I don't know if you saw that, what we -- our breast cancer awareness campaign, Nurses Week, International Women's Day.

Then to your point, it's great to have this tailwind where the COVID overhang is now behind us. We are operating in a more normalized environment. And the strong fundamentals of this industry are really shining. This is a replenishment-driven industry. It's nondiscretionary. It's nonseasonal. It's noncyclical. And so all of that is really a tailwind behind our execution. And it is -- and you saw that even in the recent jobs report, I mentioned in the prepared remarks, all of the employment gains in the market are coming from healthcare. And the demand for healthcare professionals has never been higher given the significant staffing shortages. So I think it's all of the above. It's execution, product, marketing and a normalization in the industry.

Then my follow-up question, I guess, maybe more for Sarah, on the gross margin side. So clearly, there was some disruption here in Q4, then you have this wildcard with new tariffs and FIGS potential mitigation efforts against those tariffs. But as you think about -- how should we be thinking about the underlying -- where gross margins for FIGS should get to? What's the -- I guess, the normalized gross margin for FIGS now taking all this in consideration?

Yes, I mean, as it pertains to tariffs, obviously, a very fluid dynamic that we're going to continue to monitor in the months ahead. I would say if there was no change in tariffs from where we're at today, we are getting more clear on what that longer-term margin looks like. I would say that we've talked about how we continue to expand into non-scrubwear, how we continue to innovate with product and with fabric. And we do think that, that will have a negative impact on margin going forward, but we feel very confident that we can more than offset that through continued improvements in G&A. And you've seen a lot of those efforts this year, and we think that there's still opportunity ahead.

So as we think about the longer-term algo, we expect sales to continue to grow, and we are setting it up so that our earnings will grow at a faster rate than sales growth.

The next question comes from the line of Bob Drbul with BTIG.

Let me add my congratulations on an incredible finish to the year. I guess, the two questions that I have, I think the first one is on the international front, you added, I think it was it China and Korea in Q4, and you have some big plans for '26. What have you learned on the new country launches? What have you learned? What will you change this year as you keep adding countries? And I guess, any big surprises so far in the international piece?

Then I guess the second question, if I could just throw it in there is around like customer receptivity to the price adjustments that you're making. Have you seen any pushback? Or is there any concerns around that?

Yes, I mean, I think international has been an incredible bright spot. We grew 55% in the quarter. And the vast, vast majority of that was the markets, existing markets that we're already in. And what's really paying off here is our go deep, go broad strategy. And so it's been great to continue to invest in storytelling, in top-of-funnel brand initiatives, in deep localization in markets like Canada, Mexico, the U.K., and Australia. And some of the newer markets, you mentioned Japan and Korea and China, we're really excited to see the results so far. It's been -- they've exceeded our expectations.

The brand is resonating. We've seen incredible success. Even we launched in China in December and we're already seeing -- we're emerging as the top brand for our industry there, which is great to see. Japan and Korea, really excited about how our product is resonating.

I think these are markets that have healthcare professionals that really care about technical functional product, and we could not be more aligned with how we are going to market there. And we're really investing in driving awareness to reach new healthcare professionals across Asia Pacific. Much more to do. It's early days. But like I said, we're exceeding our expectations, and that's great to see.

Yes. And then I think your other question, just in terms of customer response on pricing. So we did take pricing in January on the vast majority of our core products. Without any meaningful history of measuring price changes, we wanted to be prudent with our assumptions. We did indicate that top line impact of pricing would be slightly positive for 2026. And it's still very early days in terms of measurement and observation for that. But we are seeing some demand inelasticity in these early stages, and that's what we've incorporated into our outlook.

The next question comes from the line of Rick Patel with Raymond James.

I'll add my congrats on the amazing execution as well. So can you dig deeper on customer acquisition, particularly in the U.S.? It's a market that stagnated in recent years, but it's growing again. I guess how much of the growth is due to new customers that are completely new to the brand versus those that may be reactivated customers? And then can you also unpack your expectations around new customer growth in 2026 a little bit more?

Sure. So as I sort of said before, the growth in our active customer base broadly came from all 3 components. So we saw growth in new customer acquisition. We saw growth in our reactivation, our largest growth rate of the year. And then we also saw an increase in our retention rate. So very broad-based. I would say in terms of acquisition within the U.S., in particular, we've seen acceleration throughout the year, which has been really great to see, all a testament to both our upper funnel marketing that is continuing to work as well as our continued improvement within lower funnel.

We've done lots of work to really improve those areas, and we're seeing the fruits of those efforts. So really happy to see all of those trends. But overall, it's very broad-based. It's not just one of the components. It's all of them coming together, and we're really happy with what we're seeing there. We do expect that to continue into '26 with really growth being driven across all components of our business in the same way that we've been seeing the trends here in 2025.

Can you also talk about margins for international markets? How did '25 shape up versus the prior year? And what are your expectations going forward given you're still expanding in some newer markets, but still seeing strong growth in the existing ones?

I mean, for our international markets, I think it's really important to know that all of our international markets are profitable other than just the markets that we entered this year, given outsized investment. But after year 1, they will be profitable. So we're really happy with the economic profile of our international markets. We do have some higher selling costs and higher marketing costs just given the geographic impact and the higher proportion of new customers. And we expect over time, there's opportunity to bring down those selling costs as we expand our distribution network and strategies around that. And expect that we will see leverage in marketing costs over time as we shift into a higher portion of that being a returning customer base.

The next question comes from the line of Brooke Roach with Goldman Sachs.

Trina, Sarah, can you elaborate on the drivers of the sequential acceleration in U.S. growth momentum that you delivered in the quarter? Did you see a proportional step-up in each of your direct TEAMS and Community Hub businesses? Or was one of these businesses driving an outsized portion of the momentum? Specifically within your U.S. customer, are you seeing any shift towards a different demographic, whether that's household income, age, gender or even healthcare professional type?

I would say it's all balanced growth in the U.S. When we look at it across our different customer cohorts, we're seeing very consistent trends. When we look at our customer cohorts across occupation, we're seeing relatively steady performance across healthcare occupations. We do see a slight step-up in students, which is the building blocks for future growth. So we like that.

When we look across our spend levels, we saw growth spend across our quartiles. We didn't see any trade down. We're seeing growth across all of the quintiles, which is really great. And same at income levels, good growth across each of the different income slices we look at, which we think speaks to both the value proposition and the strength of the brand. And then when we look specifically at our new customers, the customer value remains strong. And even when we look at that over several months after they've entered the brand, we're seeing really good LTV dynamics. So again, all very balanced growth even within the U.S. business.

Specific to your question on TEAMS and Hubs, keep in mind, these are still relatively small businesses that will deliver in the long term, but really the growth is being driven by that U.S. e-com business within the core pieces of that business, which is really great to see.

Great. And then just a follow-up for you, Sarah, on the selling expense. You saw some nice leverage on that line item in the last few quarters, and it sounds like you're guiding for some additional efficiency opportunities here. How should we be thinking about the opportunity for that selling expense line item, both in '26 and on a multiyear basis?

Yes. So we have guided that we'll have full year leverage in 2026, and that will be driven by continued improvements in shipping costs and at our fulfillment center. I think as you look at each quarter, we would expect year-over-year bps improvement each quarter. I'm happy to share that we expect the annual rate will be lower than our 2022 and 2023 rates, which was before we transitioned to our new DC, even with an increase in the higher cost international shipping. So great milestone there earlier than what we had anticipated. So exciting progress there.

So I think over the longer term, there will be continued opportunity to see leverage in that line item. We will make investments into expanding our distribution network at a later time. But overall, we're going to continue to find opportunities to bring that cost down.

The next question comes from the line of Adrienne Yih with Barclays.

Really nice to see the acceleration and the surprise to the upside. Trina, I was wondering, can you talk about just the composition of marketing as you enter into new international markets, how do you think about marrying sort of top of funnel marketing to get the brand awareness versus some of the more performance marketing? So that's kind of my first question.

Then kind of a follow-on just to that is kind of using and investing in all these AI tools. How do you think about that? It seems like you're perfectly primed with all of the data that you have. How are you primed to think about that over the next 1 to 3 years?

So I think what we've seen has been our story from a marketing perspective in the U.S. is kind of what's playing out internationally as well. And so we really built this company and grew our brand awareness from a digital marketing perspective. And as we grew and scaled, we invested more deeply into top of funnel and storytelling. And only the best brands in the world can really invest in brand and storytelling the way we do. And I actually don't know another brand that does it exactly and uniquely the way we do in terms of really connecting on a deep, deep level with our community. And so the word-of-mouth dynamics are strong.

As you learn about the brand and you work in a hospital or any healthcare institution, you're in a densely populated environment and you're talking about FIGS and you're talking about our products and you're talking about our campaigns. And that's actually what the largest driver of acquisition is this word-of-mouth dynamic. And so then people come to the site and they engage and then we drop a new product, we drop a new color. And then once again, they're talking about us in the break room or on their way to their next patient. And that's once again acquiring that next customer for us, because FIGS is a walking billboard around every healthcare institution, not just in the U.S. but around the world now. And so those dynamics where we're able to take the gains, right?

We see these tipping points in markets where we're more mature. CACs fall dramatically in those markets and we're able to take those gains and invest in the next market. And then we scale and we get really efficient on marketing and then we take those gains again and we invest in the next market. So we're seeing that now, those word-of-mouth dynamics, those customer acquisition tipping points across institutions around the globe. We're seeing that dynamic work on a global level, and it's really, really exciting.

From an AI perspective, you're right, we have an incredible amount of data, probably more data than others because when we started this company and how we're a D2C brand. And so we're utilizing this data. We're utilizing the AI tools at our disposal to become more and more personalized with our community. And that's why the retention, our repeat frequency it's just has come back incredibly, and not just in the quarter, right? You saw it throughout last year.

Healthcare professionals are coming back over and over again, not just to replenish their uniform. They're coming back to see what's new, to see what's interesting, to build out their uniform. Uniform builders has become a big category, and that's going to be a huge driver in the future. And so it's very exciting to be able to have this incredible base of millions of healthcare professionals that we're interacting with on a daily basis. And now to be able to layer on top of that, all of these different AI tools and utilize a lot of our insights around the differences between healthcare professionals across our community and personalize on such a detailed level that we know exactly who you are and where you work and what you do and what you bought before and what you're most likely to buy again, and that's really powerful. And that is the future. We are at the forefront of this. We're at the forefront of this personalization wave, and we're really excited about how it's going to generate even further gains for us in the future.

Fantastic. Sarah, my last question for you is, can you just help us out with kind of sourcing diversification, where you are in that journey? And then for me, just a tariff clarification on what you said. So if is the change in sort of like guidance or what we should be thinking about is the movement from the Southeast Asian nations would have assuming would have been around 20%. So are we now assuming that they're 15%? Or just some clarification there.

Sure. So we source from Vietnam and from Jordan and the tariff rates that were previously in effect were 20% for Vietnam and 15% for Jordan. And so as of today, we know the 10% level is in effect and the 15% level has been pledged. We think it's appropriate to take the more conservative assumption here at 15%. And so we've reflected a 15% rate for the rest of the year. Obviously, that will be very fluid in the weeks and the months ahead, and we will continue to monitor that. But we remain confident that our full year guide regarding top and bottom line are just going to continue our sharp execution and stay on top of any changes that happen.

The next question comes from the line of Ashley Owens with KeyBanc.

It's Victoria on for Ashley. And I add my congrats on a strong finish to the year. So I wanted to start off on mix. Scrubwear was up 35% and non-scrubwear up 26% in Q4. Can you talk about the puts and takes inside non-scrubs, whether it's underscrubs, outerwear, socks and footwear? What carried the quarter and which of those you expect to be sustained contributors into 2026?

So in the prepared remarks, we did talk about non-scrubwear benefit. So we're seeing improvement and great growth in our non-scrubwear, that's our Salta, Mercado, and our Grid styles that we're really pleased with the performance that we're seeing there. Within outerwear, that's being driven by our high pile bombers, and we are continuing to have category expansion into outerwear, which we're excited about for 2026. We've also introduced bags, our new Archtek compression socks and other accessories that are all performing well, and we're excited about the continued momentum there as we expand category and outfit the full closet of the healthcare professional.

Then my next question was just on TEAMS. What is the 2026 pipeline visibility? And how should we model teens as a percent of revenue and its gross margin versus OpEx profile?

So TEAMS today is still single-digit penetration to total revenue. I'm really pleased with how we're continuing to grow that business. So just keep in mind, it is still small today and the economic profile of TEAMS, it does have a slightly lower gross margin just due to the wholesale pricing with a discount there, but we more than make up for that with it being a higher profitability overall with lower OpEx costs. And yes, really excited about the strategy going forward and the plans. We've just launched our new TEAMS Store and lots of exciting progress and upcoming for our TEAMS.

There are no further questions waiting at this time. I would now like to pass the conference back over to Trina Spear for any closing remarks.

Thank you so much. What I want to just end this with is that it's been a long road to get to this point, but you've now seen that we've stacked great quarter after great quarter, and it's super exciting. But it pales in comparison to the opportunity ahead, and we're so excited to go after that. So I just want to thank you all for joining us today. More to come.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

Good afternoon. Thank you for attending the FIGS Third Quarter Fiscal 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. I'd now like to pass the conference over to our host, Tom Shaw, Senior Vice President of Investor Relations. Tom, please go ahead.

Good afternoon, and thank you for joining us to discuss FIGS Third Quarter 2025 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com.

Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Sarah Oughtred, our Chief Financial Officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunity or business plans.

Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10-Q we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update.

Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation we issued today.

Now I'd like to turn the call over to Trina.

Thanks, Tom, and good afternoon, everyone. Our third quarter results are built on the momentum generated during the first half of the year, delivering our highest quarterly year-over-year revenue growth over the past 2 years, supported by strong performance across the board.

Net revenues were up 8% for the quarter, well ahead of our plan. Importantly, this success was pronounced across the core parts of our business, scrubwear, the U.S. and our business as usual selling days. At the same time, we drove the core while executing our plan to pull back on promotions. We believe these positive trends within our foundation are a great sign of our brand health and support the sustainable growth story we see ahead.

We also executed well across the P&L in Q3. Gross margin remained healthy, approaching 70% despite the growing impact of tariff headwinds. Substantial SG&A leverage reflected both the lapping of outsized expenses last year, but more importantly, the success of our ongoing efficiency and tariff mitigation efforts. Overall, this execution supported an impressive 900 basis point improvement in our adjusted EBITDA margin to 12.4% for the period.

As we look ahead, we are seeing this positive momentum carry over to the start of Q4, and we are meaningfully increasing our outlook as a result. We now expect Q4 to be our strongest net revenue growth of the year, driving our full-year estimate to approximately 7% growth. We also have increased our adjusted EBITDA margin expectation above the high end of our original outlook and back to low double-digit levels.

This reflects the great progress we have made during the year despite the onset of tariff headwinds. Overall, we are executing exceptionally well against our expectations and driving better consistency. I'm so proud of our team's collective effort as we look to deliver to all of our stakeholders, most importantly, our healthcare professionals.

Reflecting on our year-to-date results, we have seen an outstanding response to our brand and wanted to spend some time on this call walking through some of the dynamics we see contributing to our top line outperformance. At the highest level, it really comes down to our success in delivering a great product assortment and impactful connections.

Starting with our product strategy, we are excited about the direction we are headed in and how we are more effectively delivering our portfolio to healthcare professionals. We see 4 interrelated areas of focus that are both paying dividends today and setting us up for success in the future. These include improved function and fit, expanded head-to-toe solutions, strategic inventory investments and stronger calendar alignment. We recognize the importance of function and fit. These are already hallmarks of our brand, but areas to continually improve in to address the evolving needs of healthcare professionals.

From a functional standpoint, we are delivering impactful and relevant new silhouettes, which are resonating with new and existing customers. This focus has been key in driving our core while also demonstrating success in elevating our assortment. Function also informs fabric leadership, where our category-defining FIONx fabrication remains the centerpiece of our brand. However, we know that there are opportunities to address the full range of activities that healthcare professionals go through every day.

Our FORMx fabrication debuted in Q1 for environments where comfort and stretch are paramount, and we have seen momentum build as we have methodically expanded offerings throughout the year. We also just announced our next fabric solution, FIBERx, which is set to debut in Milan at the 2026 Winter Olympics. Lightweight yet structured, soft yet durable. This fabric is designed to work in environments, like for those supporting our Olympic athletes, where durability is particularly important.

Looking at our fit initiative, our efforts are already paying off with lower returns, fewer inbound comments to our customer experience team and improved customer trust. With our obsession with function and fit coming together, we are also excited with how our enhanced product design work will elevate the entire product portfolio in 2026 and beyond.

Continuing to build this strength in our core opens the aperture for outdating healthcare professionals from head to toe. For example, our recently introduced ArchTek compression socks demonstrate our latest commitment to category leadership as the first ever patented medical-grade compression socks in the market. Across additional areas such as outerwear, underscrubs and footwear, our team has developed a road map of how we plan to prioritize and build out these opportunities in the years ahead.

With confidence in great product, we are investing appropriately. Coming off recent periods of more conservative buying plans, we have made more informed and deeper inventory investments across certain styles and colors. This action has contributed to a better flow of newness to our healthcare professionals while also supporting better overall in-stock levels.

Finally, this all ties directly to our enhanced merchandising work around calendar alignment. We have added more rigor to how and when we deliver our product and messaging, efforts that have not only enhanced productivity across launch moments, but also our ability to leverage those moments in driving demand back to the core. This work has added importance as we reset our promotional cadence this year and as we execute against a repeatable, scalable framework for consistently delivering great products.

As excited as we are with our product direction, our impact would not be what it is without our unique ability to serve our community and build connections in ways that only FIGS can. We are seeing the payoff of our amazing top-of-funnel moments that started with some of last year's big brand splashes and have continued throughout 2025.

Looking at some of our recent successes, let's start with what was a unique opportunity heading into this year's Emmy awards. Last call, we detailed our advocacy work in Washington, D.C. with actor Noah Wyle, work which went viral across our community. When Noah was then nominated for Best Actor for The Pitt, he challenged us to make a tuxedo for the Emmy that was as comfortable as the scrubs he wears onset. We stepped up to the challenge by creating a first-of-its-kind tuxedo. With subtle details and craftsmanship, we are proud to support Noah's desire to bring the healthcare community directly to the red carpet.

As the night progressed and momentum built, we strategically aired our Where Do You Wear FIGS spot during the last commercial segment before the awards for Best Actor and Best drama were announced. This was executed perfectly as Noah and The Pitt went on to win both of those awards coming out of the break.

On stage, Noah eloquently dedicated his award to anybody who's coming on shift tonight or anyone who's coming off shift tonight. This overall moment became among the most viral in our history with multiple best dress nods for Noah and 175 total placements across traditional media and social, including over 30 top-tier press articles across fashion, entertainment and lifestyle outlets.

Most importantly, our actions led healthcare professionals, our awesome humans, to feel seen in a way they rarely do on the world's biggest stage. Our brand work was just getting started as we continued our year-long celebration of ready-to-wear FIGS. Following the Emmys, we debuted our global installment of the campaign filmed across Tokyo, London, Mexico City and Los Angeles, showing how medicine is a universal language. We are excited to be able to amplify our message in key countries with upper funnel support.

It is also important to highlight our work supporting breast cancer awareness. It's easy to highlight the commercial success of the campaign with our Epping Pink and Fight Club Pink color launches being one of our top-performing color drops in our history. The more important part, the harder part was showing the inspirational work of healthcare professionals, including Dr. Elisabeth Potter, a breast reconstruction surgeon from Austin, Texas.

The success of our campaign underscored how much she resonates and is at the forefront of industry conversations in the medical community. It also reinforced the type of impact that we aspire to with Dr. Potter proclaiming, you guys listen, we feel represented and you care about what we're going through. The success of these campaigns are further proof points of how we strike a deep emotional cord with healthcare professionals through the stories we tell.

This has always been part of the secret sauce at FIGS, but since our Olympics campaign in 2024, we've been on a run of our best top-of-funnel campaigns ever, and we're determined not to slow down. Not only are our campaigns resonating in unprecedented ways for the brand, but we are also matching this work with added sophistication in our measurement. Performance marketing tools are giving us added insight into when to lean into brand moments and how to optimize our messaging. Importantly, we still have considerable opportunities ahead as we think about leveraging unique views of healthcare professionals to better personalize their experiences.

Finally, it's important to highlight that our great execution is bolstered even further by an industry backdrop that is returning to its pillars of fundamental strength that most other apparel industries can only dream of. This includes the replenishment-driven, largely non-discretionary and seasonless nature of our scrubwear that healthcare professionals return to over and over again. It also involves a massive industry that is among the fastest-growing brand any sector with over 23 million U.S. and over 100 million international healthcare professionals. To put it simply, we are serving a strong industry with professionals that need uniforms to do their jobs.

Raising the bar further in these foundational areas also helps fuel our efforts across our 3 emerging growth drivers: international, teams and community hubs. We are making important investments across all 3 of these opportunities in 2025, and each is expected to scale in importance in the years ahead.

Starting with international, our expansion is a significant focus and one where we have a number of recent developments. With over 80% of global healthcare professionals located outside of the U.S. and driving less than 20% of our revenues, international remains a massive opportunity. We are rapidly expanding our footprint this year, jumping from 33 countries to nearly 60 planned international markets by the end of this year. We are driving this expansion in a disciplined way through 2 strategies, either go broad or go deep.

To go broad, we are focusing on low-touch ways to open markets, leveraging technology and regional commonalities to efficiently expand. Following 12 new Latin American markets we announced last quarter, we are on the cusp of opening 11 new markets across the Middle East and Africa region. We know that healthcare professionals globally have the same awful experience as they used to have domestically, and this strategy is an easy way to begin to reshape expectations in many smaller markets while also informing potential future investments.

With our go deep strategy, we're focusing on markets with more clearly defined opportunities and taking additional steps to more directly invest. For some of our more established markets like Canada, U.K. and Mexico, investments extend to infrastructure as we look to localize and scale. This includes adding in-market talent, brand marketing to drive awareness and logistics to drive more efficient operations and support profitable growth.

This strategy also informs our approach to several new markets, including the launch of Japan in Q2. This market is trending well to-date and providing great early learnings with how to serve locally. We also took the same level of care as we opened South Korea in October. We are excited to announce today that we plan to debut in China through Tmall later this quarter. While near-term contributions of these 3 new markets are expected to be modest, we see the opportunity for each to be significant drivers of our long-term international growth story.

We are also actively investing in our teams and community hub opportunities, solidifying each of their own foundation for meaningful growth going forward. With teams, we want to both capture the legacy demand for institutional-led buying and also influence behavior with great solutions to drive this mix even higher. To power these efforts, we have added talent to both nurture our great existing partnerships and also to better cultivate new ones. We also have a focus on unlocking seamless and customizable solutions for a wider range of institutions and are excited to begin deploying updated technology this quarter.

With Community Hubs, we are excited to debut 3 new stores this quarter, starting with New York's Upper East Side planned next week and then followed by planned openings in Houston and Chicago. Each of these locations will apply key learnings from our first 2 stores and apply updated design and merchandising elements to enhance the overall experience. We continue to see the value of having a physical presence for the brand, particularly with nearly 40% of customers coming in new to the brand. We remain confident in our disciplined approach and are well-positioned to accelerate our cadence of openings in 2026.

Before turning the call over to Sarah, I would like to reiterate how excited we are with our progress. As we have highlighted, the foundational pieces of our business are strengthening. Our community engagement has never been more impactful, and we see significant opportunities to sustain momentum in 2026 and beyond. Importantly, we will never lose our unyielding focus in support of the healthcare community. This is an intangible thing to measure, but one that defines our brand's leadership, caring, connection and authenticity.

This is our non-negotiable. It's how we drive relevance and staying power. At the same time, we're applying more discipline, talent and rigor across all the other factors that drive our business. We are positioned well to continue our momentum and amplify the brand over the long term.

With that, I'll pass it over to Sarah.

Thanks, Trina. Our year-to-date performance highlights the growing potential of the FIGS story as we more closely align our product strategy with our unique ability to drive impact for healthcare professionals. We are particularly encouraged to drive this high level of execution in a year where we had both a planned headwind with our promotional repositioning as well as an unplanned headwind with tariffs. As I'll discuss, we are excited to see the progress reflected in our full-year top and bottom line expectations that have moved markedly higher the past few quarters.

First, let me start with details of our strong third quarter performance. Net revenues increased 8% year-over-year to $151.7 million, ahead of our outlook of flat to up 2%. As Trina highlighted, our performance was underscored by both scrubwear growth and U.S. growth, each reaching 2-year highs as well as the extremely encouraging strength and momentum across our business as usual selling period.

These indicators continue to support our successful ability in resetting our promotional strategy this year, particularly with more aggressive action planned across the back half of the year. From a measurement standpoint, average order value increased 6% to $114, primarily driven by higher average unit retail due to product mix and a higher rate of full price sales.

Active customer growth has remained consistent throughout the year at plus 4%, pushing our active customer count to a company record of nearly 2.8 million. This growth comes despite our promotional reset, and we have seen momentum in our acquisition trends and sustained success in bringing lapsed customers back to the brand. We were also pleased to see our trailing 12-month measure for net revenues per active customer inflect positive for the first time in 3 years with 2% growth in the period to $209.

By category, scrubwear grew 8%, representing 84% of net revenues for the period. Results were ahead of plan with strength in our core products supported by impactful color stories, strategic positioning in key styles and effective merchandising and marketing. Color launches and cadencing were successful in not only driving excitement to new offerings, but also energized our core colors. Looser-fitting silhouettes are increasingly resonating, particularly in bottoms, and we are leading and investing in these areas.

Complementing our great assortment, we continue to drive cohesion with how and when we deliver and message to our customers, which is driving productivity. Non-scrubwear increased 7%, representing 16% of net revenues. We saw strong growth in underscrubs, which included new 3-quarter length versions of our popular Salta and Mercado styles and were inspired by customer feedback.

Shoes rebounded from some of the executional challenges in last year's period and were supported by strong coordination with our color stories. We were excited to launch our ArchTek socks at the end of the quarter, which we believe will be a great core offering to address healthcare professional needs going forward. Notably, results also reflect the comping of some Olympics-driven newness in areas like outerwear and bags, but we remain excited with the pipeline of products in these key areas going forward.

By geography, U.S. sales increased 8% to $127.3 million. This was our strongest performance over the past 9 quarters and continue to reflect balanced growth across both new and repeat customers. International net revenues increased 12%, led by particular strength in driving new customers. Headline growth was solid, but had some nuances that understated our overall strength.

In particular, we had a more significant reduction in promo days relative to the U.S., which had an outsized impact on Canada and Australia, 2 of our larger markets. Nonetheless, we are excited as we look at our overall performance, including active customers up strong double digits, AOV up in all regions and ahead of the consolidated growth and fantastic business as usual growth.

Gross margin for Q3 expanded 280 basis points to 69.9%. Key contributors to this year-over-year performance included lower discounts from the reduction in promotional days, improved return rates and processing, lower duties and reduced freight costs. These tailwinds were partially offset by higher tariffs.

Results were significantly better than planned, driving our best quarterly performance since early 2023 with broad-based upside, including conservative sell-through assumptions of the mix of non-tariff goods and through our improved returns processing work.

Our selling expense for Q3 was $35.8 million, representing 23.6% of net revenues compared to 27.5% last year. As a reminder, last year's third quarter included the majority of transition costs associated with the opening of our Arizona fulfillment center. In addition to lapping these costs, we drove continuous improvement here as we further optimize our business. We also saw improvements in shipping given our successful actions to optimize our carrier mix, improve pricing and drive strong service levels.

Marketing expense for Q3 was $23.5 million, representing 15.5% of net revenues, down from 20.3% last year. The reduction in the spending rate primarily reflected lapping last year's strategic investment to outfit the Team USA medical team at the Olympic Games and efficiency in marketing spend.

G&A for Q3 was $37.1 million, representing 24.5% of net revenues compared to 25.3% last year. Consistent with prior quarters, the lower G&A expense rate was primarily due to a meaningful reduction in stock-based compensation expense, partially offset by higher people costs.

In total, our adjusted EBITDA for Q3 was $18.9 million with an adjusted EBITDA margin of 12.4% compared to 3.4% last year. Net income for the quarter was $8.7 million or diluted EPS of $0.05 compared to net loss of $1.7 million last year or diluted loss per share of $0.01.

On our balance sheet, we finished the third quarter with a strong net cash, cash equivalents and short-term investment position of $241.5 million. Inventory increased 23% year-over-year to $151.2 million or up 20% on a unit basis. Several factors are impacting the buildup of inventory.

As indicated last quarter, it starts with our action to support both product introductions and deeper investments in key styles, which we believe has helped drive some of the upside opportunity during the back half of the year. We also saw a higher-than-planned level of in-transit inventory, reflecting earlier timing given some of the process improvement we have been working to drive across the supply chain. While the gap between unit growth and dollars growth was modest during the quarter, we expect the growing impact of tariffs will contribute to a wider spread in Q4.

On the capital allocation side, we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program. Capital expenditures for the quarter were $2.9 million, primarily related to our 3 new community hubs, and we now expect approximately $7 million for the full-year.

Now turning to our updated outlook to close out the year. Full-year 2025 net revenues are now expected to grow approximately 7% year-over-year, ahead of our prior outlook of up low single digits. On top of our strong Q3 results, we see several factors supporting even better implied growth in Q4. To start, we had fantastic momentum coming out of the third quarter, starting with our hugely successful breast cancer awareness campaign and extending into our business as usual selling days.

As I also mentioned, we are investing more strategically in our inventory position to ensure better availability of key products and styles. This also drives what we expect to be our best balance of new colors and styles offered year-to-date, which is also proving effective at supporting the core business.

We are excited to continue to launch this newness with the same discipline that has supported our strong productivity this year. Finally, we will complete our year-long promotional reset this quarter, though do not expect the corresponding revenue drag to be as meaningful as Q3.

Looking at gross margins, our full-year 2025 outlook has improved from our prior call and now expect only a modest year-over-year decline from last year's level of 67.6%. A large part of the sequential improvement comes from the Q3 upside, though we do now expect less overall drag in Q4 as well. As a reminder, we faced 2 sizable headwinds in Q4.

First, we expect ramping sequential tariff pressure as more impacted goods average into our product costs. We continue to assume added tariffs of 20% in Vietnam and 15% in Jordan, which combined drive nearly all of our production. Second, we are also lapping a sizable onetime benefit from duty drawback claims in the year ago period.

However, similar to Q3, we have several items that are helping offset these pressures, including lower discounts, improvements in our returns processing and freight. Additionally, we are starting to get better scale on certain styles in conjunction with demand.

The full-year SG&A story continues to show strong leverage following last year's outsized investment. While Q4 is still expected to show some expense rate deleverage, the magnitude has been reduced primarily by the impact of our improved top line assumptions across each of our expense buckets.

More specifically, this quarter, selling expenses should continue to benefit from our scaling efforts and tariff mitigation strategies. The marketing expense rate is planned to meaningfully increase, reflecting both lower spend rate from the prior year as well as our ramping support for the forthcoming 2026 Winter Olympics. The G&A rate will continue to reflect lower year-over-year stock-based comp, partially offset by higher planned people costs.

Overall, we are updating our full-year adjusted EBITDA margin to approximately 10.3% compared to the prior range of 8.5% to 9% and ahead of the original outlook of 9% to 9.5%. We also want to provide several high-level comments that pertain to our early 2026 planning.

First, on net revenues. We are committed to growing the business in 2026, which should continue to be supported by strong current momentum and ongoing process improvements. Additionally, we expect the investments we have made in our 3 emerging growth drivers, international teams and community hubs will begin to have more material impact. While not all of these factors will have linear contributions, we are excited to further unlock these businesses given our strengthening core.

Next on tariff mitigation. As we have discussed, we have a number of levers across both product costs and SG&A that we have already pulled and some that remain in consideration. We have already seen strong execution as we optimize costs across inbound and outbound shipping and at our fulfillment center, benefits that we plan to extend into 2026.

Our supplier negotiations have been productive and are expected to yield additional savings next year. While we do not plan to take any pricing action in 2025, it remains a lever for next year. Finally, on margins, the bar for 2025 adjusted EBITDA margins has been raised despite an estimated unmitigated tariff drag of approximately 110 basis points. However, with an estimated annualized unmitigated impact of closer to 440 basis points, we expect that the majority of tariff headwinds is still ahead of us in 2026.

As such, we will use our ongoing planning process to continue monitoring the overall environment while also balancing our ongoing discipline, the full range of tariff mitigation as well as strategic investment levels. While it is too early to provide specifics, we do think it is important to note that we see opportunity for 2026 adjusted EBITDA margins to be within range of current 2025 expectations.

Overall, we are energized to be in such an incredible industry where serving healthcare professionals is paramount. With improving profitability and ample balance sheet flexibility, we believe we are positioned to remain on offense and drive the sustainable long-term growth story we see ahead.

I will now turn the call back over to the operator for Q&A. Operator?

[Operator Instructions] First question is from the line of Bob Drbul with BTIG.

Nice quarter. A couple of questions for you. Just on the gross margin performance this quarter, I guess when you look at it a little bit longer term into next year, but I would even say when you look at your historical results, given your ability to sort of navigate a lot of the tariffs, can you just talk us through how you envision that segment, that line item of the business over the next several years, I guess, at this point?

Bob, yes, so we saw a really great gross margin for this quarter, up to 69.9%. Obviously, that's been quite higher than where that rate has been. We did see some components there, some that will continue into the future, but some that are unique to the quarter. We are seeing improved discount rates from the pullback in our promo strategy, and we'll see that continue into Q4 as being a benefit year-over-year. Longer term, that increase year-over-year will moderate as that promo strategy normalizes into next year.

We've been working hard with our new returns partner and seen some good improvement in our refurbishment rates. Then there was a bit of nuance in how some returns processing happened with the prior year DC transition. We do expect some of those improvements in refurbishment rates to continue going forward, but not at the same rate that we saw in the quarter. We've been really working hard to optimize our inbound rates, and we saw the benefit of that this quarter, and that should continue into next year until we annualize that.

Obviously, tariffs are the biggest piece, and so that will have a 440 bps total impact next year or up 330 bps. There's still some unknowns around how tariffs will remain. We'll continue to monitor that, but feeling good with our measures of how we're able to continue to find efficiencies within margin and carry that into future to continue to work on offsetting those tariffs.

Next question is from the line of Rick Patel with Raymond James.

Congrats on the strong execution. Can you expand on the demand that you saw during the business as usual days when you didn't offer promotions. How is Q3 performance on those days relative to where it was in the first half?

Second, given tariffs are intensifying and demand is holding up well, what do you need to see to revisit the pricing lever for next year?

Great. In terms of our business as usual days, we've seen acceleration each quarter in those business as usual days. Really great to see that. It's really from the broad-based performance that we're seeing across both the U.S. and international as well as both scrubwear and non-scrubwear. Really happy with that performance, and it's really that acceleration that has had revenue growth rates overall accelerate each quarter. Really happy with what we're seeing there.

Then I think you asked on pricing, and so our pricing remains consistent with what we've shared previously. Several considerations that we've shared before that still remain, which is healthcare professionals need our products to do the critical work that they do. Nearly 2/3 of our customers make under $100,000 a year. We have 16 core styles that generate the majority of our revenue. Our ability to simply flow through higher prices into new seasons or new styles is limited.

We want to be prudent, and there is still some open-endedness on where tariffs will land. We've been working really hard on our tariff mitigation and these efforts include optimizing our supplier base, negotiating discounts with our suppliers and driving efficiency in inbound and outbound. The great news is that we've seen strong progress on these measures to-date. We're not going to be taking pricing in 2025. If we were to take any future pricing, that decision would be held to share with our healthcare professionals first so that we can control the narrative and deliver with the care that our healthcare professionals deserve.

Next question is from the line of Brooke Roach with Goldman Sachs.

Trina, Sarah, I was hoping we could discuss the trends that you're seeing in AOV, understood that some of this is coming from the promo reset, but how are you thinking about the opportunity for AOV to contribute to revenue growth as you look ahead into 2026?

Similarly, can you talk a little bit about the customer trends that you're seeing? Are your customers engaging more frequently? Are they staying for longer? Are you seeing better reactivation trends or better new acquisition trends? Are you seeing any trends specifically within any age or income cohorts given the broader macro environment?

Great. I'll start with the question on AOV. In terms of AOV, we've been seeing that increase each quarter and saw a fairly large increase in the current quarter, up 6%. That is driven from both mix shift in our product as well as the pullback in our promotional efforts. I think as we think about 2026, we still think there is some opportunity for AOV to continue to increase. That's largely with how we're thinking about product mix and continuing to build out that full assortment head to toe of that healthcare professional and continue to drive into a higher wallet share that we know is available to us.

I'll just add in terms of the trends we're seeing in our consumer. Brooke, as you know, we don't -- we serve a different consumer than the average apparel or even e-commerce company. Our customer works in an industry that has a real like level of stability. People need healthcare workers. They're not going anywhere. If anything, our industry is really accelerating. It's the healthcare jobs are the fastest-growing job segment. They're growing 3x faster than the overall job market. The demand for healthcare professionals is expected to remain high.

A lot of the trends that we've seen in the quarter, some of it is the fundamentals of the industry and obviously, what we're doing on the product side, on the marketing side to execute at the level that you're seeing.

To your question around like the trends we're seeing, we're seeing our customers come back. If you look at repeat frequency and you kind of remove the impact of the promotional pullback, we're seeing repeat frequency up significantly. We're seeing our reactivations up significantly, and we're seeing actually cohorts performing across all income levels. Really great trends across the board. We feel really confident that the post-COVID overhang is easing, and we're operating in a much more normalized environment, and it's great to see.

Next question is from the line of Matt Koranda with ROTH Capital.

It's probably just a follow-up from some of the earlier questions. Just wanted to hear a little bit about what's driving the acceleration that you're implying into the fourth quarter despite the tougher comparison year-over-year. I just wanted to hear a little bit more about customer strength. It sounded just like Trina, like you just said, even your lower income cohort is still performing well. I just wanted to hear you kind of talk a little bit more about the drivers of the acceleration into the end of the year here.

Matt, yes. I mean, we've been seeing some really broad-based and healthy trends that have continued to progress as the year has gone on and see the opportunity for that to continue into Q4. We feel good with how our product and marketing is set up for the fourth quarter. We think we can get there with continuing the trends that we've seen.

We've been seeing that new customer acquisition has turned positive in terms of growth for the last 2 quarters and seeing that momentum also really come from our domestic business, which carries weight in terms of the overall growth. We're seeing some great trends in the business as usual days that has been accelerating. All of those components has been captured in how we're thinking about the fourth quarter upcoming.

From a promotional perspective, our stance has still remained with how we had seen before. The improvement in revenue growth expectations from Q4 really comes from our business as usual days. No change in how we've been thinking about promo. For Q4, the focus will be on Black Friday, Cyber Monday, but similar to previous quarters, there will be a pullback in our efforts versus the prior year.

Can I ask about community hubs? You guys sounded more excited, I guess, than usual about the opportunity to lean in there going into '26. Just wanted to hear a little bit more about the potential drivers of growth with Community Hub and where we are with store formats, how they're set up for growth next year.

Sure. Thanks, Matt. We're really excited about our community hubs. We're about to more than double the amount that we have. We only have a community hub in Century City in Los Angeles today and in Philadelphia and Rittenhouse Square. We're about to open New York City on the Upper East side at 69th and 3rd. We're right in what's called hospital row, which is incredible. You have Memorial Sloan Kettering, you have the hospital Special Surgery, New York-Presbyterian Weill Cornell, Rockefeller. These are powerhouse healthcare institutions that are literally at the same intersection of where we are.

Houston, we're opening right near Texas Medical Center, the world's largest medical complex. It has 120,000 employees, 10 million patient encounters a year, over 180,000 surgeries a year, and so Houston, incredible healthcare professional city, and it's a great place to be, and we're really excited.

Finally, Chicago. We're located less than 2 miles west of the loop. We're in Illinois Medical District. It's one of the largest urban medical district clusters in the United States, 4 major hospital systems, 2 medical university campuses, 40-plus healthcare-related facilities. That's just -- those are just opening the rest of 2025, and it's November 6 today. Couldn't be more excited.

We're taking our learnings from what we've seen with our first 2 hubs 40% of customers are still coming in new to the brand. 30% of customers that are coming into our community hubs are becoming omnichannel customers coming back into the stores, coming back to us online. Really strong -- and we're seeing really strong incrementality in the markets that we're in, and so took a lot of the learnings from our 2 hubs. We've redone the format, the space, how much inventory we can get on the floor, how we're approaching our color drop stories, our newness, our layering, our fit and how we can showcase that in a new and original way.

Finally, customization. Everyone wants their scrubs embroidered with their name and their logo so they can tell the world who they are and what they do. These are just being in person with our community, having them feel and touch and experience our product and our brand is -- it's so amazing and so important, and we're really excited.

Next question is from the line of Brian Nagel with Oppenheimer.

Nice quarter. Congratulations. I've got a couple of questions. I guess one near term and then one long term. On the near-term side, as we look at the sales acceleration in the business, particularly what's happened here in the third quarter, then as you're telegraphing in the fourth quarter, to what extent is that sales acceleration being driven by new products, the new product introductions?

Then my follow-up question, I guess, is longer term, a little bit longer term in nature, but now as we're watching the top line of FIGS start to solidify, you're seeing the sales growth. Is there any updated thinking on how the margin – particularly, the EBITDA margin profile of the business should evolve over time? Should we have the potential to get back to the peak operating margins?

Great. In terms of your question on is the growth coming from new products, I mean, actually, what we're really excited to see is the majority of the growth is coming from our core products and even in our core colors. That's a great foundation for the long-term health of our business. Obviously, we've seen growth in some of our newer styles and in our color, and it's really showing that when we showcase some of that newness and innovation, it actually drives the halo effect to our overall core. Really great for us to see there that we have the ability to continue that momentum longer term from a sales growth perspective.

In terms of EBITDA, for next year. For now, we've made the commitment that our adjusted EBITDA margin rate would be within range of our guide for 2025. We do have 330 bps of tariff headwind year-over-year into next year. We would be offsetting that in order to stay within range of this year. Our ability to meaningfully offset that is from improvements that we are making in the business to be more efficient, to drive into savings while still being able to invest for the longer term. We'll have some harder ability to expand margin next year just due to the tariffs. Longer term, we see the path for this foundation to continue to go forward and us for -- to drive growth, both top line and into bottom line.

Next question is from the line of Dana Telsey with Telsey Group.

Nice to see the progress, Trina. Two things. As you think about the Olympics coming up and the marketing for the Winter Olympics, what will be the same or different than what you did for the Olympics in Paris, knowing that summer, this is winter. What do you see as the difference? One of the interesting things in the quarter is the sequential improvement in the growth rate of the non-scrubs business, up high singles compared to the slight decline last quarter. What are you seeing there? What categories are resonating?

Thank you so much, Dana. We're really excited about our continued partnership with Team USA. As you know, we're the first company ever to outfit a medical team for any country globally, and we're really proud to be able to do that again for these upcoming winter games in Milano Cortina. There's a few things that we really learned and we're going to be applying from our lessons in Paris.

First one is that we're finding more ways to have an impact. We learned a lot on the ground. We've created an even better, if you can imagine, a more dedicated space at the Team USA, welcome Experience. That's really exciting. We have a brand-new fabrication called FIBERx. It's really made for healthcare professionals in more high-impact environments like what you would be doing outside in winter and especially for the medical professionals supporting our athletes during the winter games. I do believe this fabrication is going to go well beyond that to serving healthcare professionals within hospitals and offices and clinics, and it's a really, really great lightweight durable fabric that is awesome. You're going to love it.

Then finally, I think we've learned a lot in terms of how to optimize our marketing spend and how to ensure that we're really balanced across the funnel. I think you've seen that throughout this year, really taking these very strong top-of-funnel marketing campaigns that, in some ways, are breaking the Internet and how do we bring that all the way down to our healthcare professionals that are on social or across channels and to meet them where they are with really strong product that serves their needs and really strong messaging that resonates and really shows the best of them back to them. I think that's what this campaign is going to do again.

Then your question on non-scrubwear. In Q2, the growth rate was negative, and that was really impacted by comping over the same quarter of the prior year that had some additional non-scrubwear launches. What we've seen with category performance for non-scrubwear is that it can vary based on promotional comparisons, the impact of new styles in different quarters and our work to reinvent a few areas. Happy to see that we inflected positive in non-scrubwear this quarter.

Even still, we are comping against the stronger quarter last year from where we had Olympics. We had strong accessories and outerwear growth from Olympics last year that doesn't annualize this year. I would say that our non-scrubwear did perform to our plan and has outperformed the first half. We've been happy to see consistent attachment rates and really excited about the opportunity ahead for many of the categories within non- scrubwear.

Next question is from the line of Ashley Owens with KeyBanc Capital Markets.

Congrats as well. Maybe just first to touch on international. With this now being 16% of revenue of the quarter, if we kind of parse that out and think of that as just shy of $100 million run rate for the business, could you just walk us through some of the next building blocks as to how you're planning to scale these regions? I know regions like Japan, South Korea are still really new. China is obviously coming on board. Would just be curious on thoughts as to if international could sustainably grow at double digits for the next several quarters and how you're thinking about that long-term mix target there?

Yes. I mean we have a two-pronged strategy, Ashley, in terms of where we go broad and where we go deep. It's been really exciting to see that we'll be at 60 markets by the end of this year. That's driven by our ability to leverage both technology and our understanding of each region and use the commonalities across regions to open up markets very efficiently. If you think about we just -- in Q3, we opened up 12 new markets, Argentina, Bolivia, Chile, Ecuador, I won't list them all, but you can get that. Then in the fourth quarter, we opened up a number of countries in the Middle East and in Africa. That's really exciting.

Then to your point, how do we go deep, right? That's the second part of the strategy, where once certain markets reach scale, think about Canada, Mexico, U.K., Australia, we're able to really invest more in the brand and brand awareness. Really localized deeply, deeper engagement with our ambassadors with events, in-market support and so, and having talent on the ground in these places. It's very exciting to continue to build out in both -- in newer markets, but also really go deep in these larger markets that have hit what I would call critical mass. No matter where you live, prior to FIGS, you had this horrible experience with your uniform. Our goal is to get some more healthcare professionals around the world and help change the game for them.

Then just quickly to follow-up. Maybe on the return rate improvement, if you could help us contextualize how much of the progress there benefited margin for the quarter or the magnitude of the decline you saw? Then just following up, moving down the P&L, any other quantifiable cost savings from fewer restocks and reverse logistics activity that you'd be willing to share?

Yes. Within returns, we've seen overall improvement in our return rates, and that is largely attached to some of our improvements to fit. We definitely saw an outsized benefit related to returns processing. It is quite meaningful of a bump that we saw in Q2. You can really see how the implied guidance for Q4 does step down. That's both with tariffs and mix shift into non-scrubwear that seasonally happens in Q4, and not recognizing the same degree of benefit on returns that we saw in Q2.

Next question is from the line of John Kernan with TD Cowen.

Obviously, a lot of upside to on a few line items in Q3. And I just want to go back to the prior question on the fourth quarter guidance because it does assume quite a bit of the momentum on the margin level doesn't continue. Can you just unpack the gross margin and then maybe the selling and G&A in fourth quarter and the expectations there, given you have a lot of momentum coming out of Q3 on the top line and the margin profile? Just curious what's maybe changing in Q4.

Yes, certainly. We will have quite a step-up quarter-over-quarter from Q3 into Q4 on tariff impact. There will be quite a step-up on the incremental amount of tariffs that Q4 has to carry. That will continue to step up as we go into 2026 as a higher portion of our inventory captures the full amount of tariffs.

We also have seasonality to consider, so we have a much higher proportion of our business in the fourth quarter that has non-scrubwear that carries a lower margin rate. You'll kind of see that seasonal mix if you look back at the proportion of non-scrubwear business in Q4. Planning similarly, and that will have some drag on the quarter.

Then also just to consider from a year-over-year perspective, as you're looking at Q4 that we did have a sizable duty drawback benefit in the fourth quarter last year that was onetime catch-up, so we won't -- that will have a headwind into year-over-year growth in Q4 as well.

Then I think you're asking in terms of the overall P&L profile. I mean, as we think about our selling costs, we've continued to see improvement there each quarter and happy with our efforts there, and that will continue into Q4. A lot of really great work that's been done to negotiate with our vendors, bring on multi-carriers and at the same time, being able to provide even better service. That will continue into Q4.

From a marketing perspective, the marketing rate will increase in Q4 from what you've seen each quarter in 2025, and that's a function of us starting our investments to support the Olympics, which happened in Q1 of 2026. Then as we go into G&A, we've been continuing to see the decline in our stock comp expense year-over-year, and that trend will continue into Q4 as well. I think those are the main puts and takes on how we think about the profile for Q4.

Our final question will come from the line of Angus Kelleher with Barclays.

This is Angus Kelleher on for Adrian. Congrats on a solid quarter. I wanted to ask how you are balancing -- how you're balancing the elevated inventory growth against the plan to pull back on promotions? What safeguards are in place there to avoid margin pressure or excess stock? I guess just more broadly, how do you feel about the composition of that inventory?

Yes. Thanks. We've been intentionally investing in inventory to support demand and improve our core in-stock levels. We've really seen improvement in those in-stock levels, which has been supporting our sales growth. We did have an impact from higher-than-expected in-transit inventory in the quarter, which we do view as positive as it does result from the work we're doing with our partners to drive consistency and execution, and it's ultimately driving shorter lead times.

If you were to adjust for that higher in-transit, our unit growth would be low double digits. So much more in line with our Q3 growth and our Q4 guide, while also giving us the opportunity to potentially capture upside. We're effectively getting product more efficiently, and we do need to adjust. As we look at the go forward, we would expect some moderation in unit growth, and that's really just as this in-transit timing adjusts.

Then from a dollar growth perspective, we actually expect that to increase into the fourth quarter, and that's really a function of those tariffs impacting that inventory that's coming in, so our inventory is higher. We do have some pockets of inventory that we are working down. We've got some older fit profiles and areas we intend to reinvest in the future seasons. We have made some good progress here, including with our targeted promotional efforts and selective write-offs we were able to do. We do continue to make progress here and in the quarters ahead. We're working on improving greater discipline and efficiency to our buying process. Over time, we do expect that inventory balance to come down over 2026 despite the higher tariffs.

Then if I could just squeeze one last one in about Teams. How is the Teams strategy evolving? How has the target customer shifted over time there? Then just if possible, any margin commentary you could share on the contribution of that business?

Well, first off, Angus, I just want to thank you for not ending on the inventory question. Thank you for adding something about Teams because I'm so excited to talk about our Teams business. It's really -- we've been really focused on investing in our Teams business as we look to ensure an optimal foundation to set us up for the future. We've talked about our outbound strategy, bringing on new institutions that are looking to standardize and brand their teams, and we've made a lot of progress.

The biggest kind of item that we're excited about is the upgraded technology. We mentioned it in the earlier part of this call, and so this is really designed for healthcare teams of all types and sizes. This platform is going to give organizations much more flexibility and functionality to purchase in a way that makes sense for their team. We are on our way to becoming the employee store for all different types of healthcare professionals that's going to go well beyond traditional group ordering.

This is going to introduce new capabilities like sipeins, like gifting, different types of discounts based on your employee type. We're really excited about being able to roll out this upgraded Teams experience. It's going to feature our full product assortment. It's also going to be able to support international teams customers, which hasn't been the case. We think we're going to be able to unlock meaningful growth in the future. And so -- and then you asked about the margin.

The margin profile. The teams profitability is accretive bottom line. It has a lower gross margin profile just to the offering of a higher discount. Then operating expense structure is much more favorable with the efficiencies, both within outbound shipping as well as marketing. I'm excited with the overall economics that this business provides.

There are no additional questions waiting at this time. I'll pass the call back to Trina Spear for any closing remarks.

Thank you all for joining us. Really excited to speak with you all, and we'll talk again soon.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.

Good afternoon, and welcome to this next session of the GS 32nd Annual Global Retailing Conference. My name is Brooke Roach, and I cover the apparel brands and softline sector here at Goldman, and I'm very happy to introduce our next session with FIGS. Here today is Co-Founder and CEO, Trina Spear; and CFO, Sarah Oughtred. Welcome, Trina, and welcome, Sarah.

Thank you.

Thank you so much for having us. Thank you guys for coming. This is later in the day. So we're going to make it as exciting as we can.

Amazing. Trina, you've had several strategic initiatives in play across your business, including a recent demonstrated return to growth across categories and geographies. As you look ahead, where do you see the biggest opportunity for FIGS?

Sure. I think we're at a really exciting time. And for those of you who don't know our story, about 13 years ago, we disrupted the health care apparel market and really brought comfort and functionality and design to an industry that never had it. And we grew over 100% every year and kind of we're selling scrubs to health care professionals during the pandemic, really accelerated the business, and kind of came off of that with a bit of a COVID overhang. And so it's been exciting to kind of come out of that and really be the leader in the space, the best product, the best brand.

And to your question, we see opportunities in the U.S. We see around the world and also within a number of our growth levers. We're the largest digital brand with only 2 stores. So last year, we did over about $550 million in sales and with essentially a store in Los Angeles and a store in Philly. We're really excited about building out, more to come.

In addition, we've been basically an e-commerce business, a direct-to-consumer e-commerce business, serving health care professionals in a variety of ways. We've become kind of a loved brand in the industry where health care professionals are obsessed with us. We're obsessed with them. And now we're interacting with institutions. And so the B2B part of our business, it's called TEAMS, is a really exciting part of the business that we're focused on, especially as we look to continue to grow internationally, where large institutions want to really have uniforms for their teams, right, and standardize and brand their institution. And so they're looking to FIGS to do that. And so we're really excited about our geographies. We're really excited about these newer channels and continuing to build the business going forward.

Excellent. Before we dive into some of those strategic initiatives, there's been a lot of noise in the operating environment this year. The health care consumer has traditionally been very resilient. But I'm curious, as you look at the balance of 2025, what are your expectations for the environment in the second half of the year relative to your recent results? Do you expect things to be better, the same or worse?

I think we're in this really insulated part of the global economy, health care. Health care professionals are the backbone of any functioning society, and there's a huge shortage still for doctors and nurses in the United States and around the world. This is the fastest-growing job segment. It's growing about 3x faster than the average job segment. And so that's really exciting because we are the brand for health care. And as we look forward, yes, there's a lot of noise. There's a lot of macro things that are playing out.

But we're really focused on what we can control, which is delivering incredible product to the best people in the world, we call them awesome humans because they are amazing. And our job is to not only show up with great product, our job is to deliver to them a great experience because at the end of the day, this is a replenishment-driven industry. Health care professionals are coming back over and over again to replenish their uniform. It's a nonseasonal industry, right? There's no big holiday thing, right? You're getting your uniform day in and day out. You're wearing FIGS to work, at work, from work, on shift, off-shift, head to toe. And so that's, I think, what makes the business really beautiful.

We're a low SKU count, high-volume business, right? So people are buying. Essentially, 80% of our business is about 15 styles. That's a beautiful thing that once again, people are coming back over and over and over to replenish. And so I think unlike maybe other consumer parts of the world, I think there's a lot of opportunity, and we are at a little bit of a different inflection coming out once again of this COVID overhang.

Very clear. As we think about the competitive landscape, FIGS has been a very prominent player within a very fragmented market. Do you expect market share consolidation in the industry to speed up, slow down or be the same in 2026? How do you view the competitive landscape today?

Well, Brooke, I think you know I don't call them competitors. They are called copycats. We don't have competitors. And I think that it's been interesting, right? When we came into this industry 13 years ago, the product and the companies that were making scrubs were really just licenses of other companies. The product was ill-fitting, uncomfortable, baggy, boxy, harsh fabrics, nothing that you or I would want to wear to work every day. And they're all sold through wholesale, Sally scrubs in Kentucky. There's 5,000 mom-and-pop scrub stores across the country where health care professionals were subjected to walking into a rack of black and a rack of navy and next to bed pans and knee braces. I mean that was an experience. And so we changed all that.

I think since we've gone public and there's been a bit of a spotlight on FIGS, the other companies kind of popped up and tried to do what we do. But these are subscale players. They are about 1/5 to 1/10 our size, and they really are just trying to really emulate what we do. And so I think the difference with us is we've built an authentic brand. We built a community around a profession. We focus on not just making incredible products, but also impact and ensuring that we can make this world a better place. And so I think this is a really exciting time where we're going to continue to widen the moat, right? This is our time to widen the moat between us and everybody else, especially with some of the tariffs that are hurting others more than us.

Very clear. The business has changed a lot in the last few years. You've gone from mostly a scrubs company to now on-shift, off-shift. I can never say it as well as you do. Can you provide an update on how you're thinking about the growth opportunities from here? Do you see more growth ahead in scrubs versus non-scrubs, U.S. or international? There's a lot of different options there.

Sure. And I think that it all starts with products, right? We're a product-first company, and we have been mainly a scrubs company. But I think what's so exciting is that as we continue to mature, all of these other categories have become a bigger part of the brand. And so obviously, scrubwear is going to continue to grow. That's the replenishment dynamic. But by your second, third, fourth purchase, you're coming back, you're adding your underscrub, you're adding your outerwear, compression socks, footwear. We have all of these other pieces that you need to do your job well.

Why are you wearing Patagonia or North Face in a hospital that's meant to go rock climbing or hiking. It's not meant to be worn in a hospital as a health care professional. It doesn't have a pocket for your stethoscope. It's not antimicrobial. It's not litho repellent. It's not all these things that you need to do your job. And so I think underscrubs massive opportunity, scrub jackets, outerwear, compression socks, footwear, all of these -- we have an amazing footwear partnership with New Balance that's been really successful. And so much more to come as we think about how our health care professionals are building that uniform, how are they building into our layering system. And that, I think, is why you've seen we've had now 2 of our highest AOV quarters.

And the exciting piece is our health care professionals spend a little over $200 a year with us. Health care professionals spend about $550 on their uniform. And so there's a massive opportunity in terms of share of wardrobe. And they're already coming back. About 70% of our revenue is repeat revenue. So how do we continue to have our community come back and not just replenish their scrubs, but also buy all these other items? And that's the opportunity, and that's what's really exciting about where we are today.

Let's drill down a little deeper into your core U.S. scrub market. As you think about the drivers of U.S. scrubwear going forward, do you think it's mostly from new customer acquisition, from penetration of closets, as you just mentioned, or something else?

I mean it's all of it. It's all of it. You got to do all the things well. But getting health care professionals that don't know yet about FIGS, I mean, we have 20-something percent unaided brand awareness, about 50-something aided, something like that. You could fix that. So our brand awareness is still not there, right? There's health care professionals in the middle of the country that don't yet know about FIGS. There are health care professionals around the world who have less than 1% market share internationally that don't yet know about FIGS. And there's no other reason -- once you choose FIGS, there's no other reason to try another uniform. And so I think there's a lot of opportunity to bring new health care professionals into the fold.

But the thing that I think is very, very exciting is that a lot of consumer companies have to start at 0 every year. We have this repeat business that compounds over time. And so I think -- and like I said, we're underpenetrated from a share of wardrobe perspective. So as you fall more and more in love with the brand, you're, "Okay, now I trust you even more. I'll try that item that maybe I wasn't -- I did go to Patagonia. Now I can get an even better fleece with FIGS." And so there are these dynamics that I think from a new perspective, from a repeat perspective, we are focused on both. Both are exciting.

And the repeat drives the new, right? Health care professionals are in highly dense environments. Hospitals are like Disney World in terms of how concentrated it is. Everyone is talking to everybody, "Oh, we're in the break room on the way to see our next patient. What did FIGS just launch?" I mean that's how like diehard fanatical -- I know you all are in the investment community. So maybe you don't understand. Talk to health care professionals. They're obsessed with us. What did FIGS just launch? What color did they just drop? What style did they just drop? Everyone, "Oh, I'm going to check that out." That repeat customer, that loyal customer is driving that new customer for free. Our largest customer acquisition is word-of-mouth. People talking about us to their friends and their colleagues and getting them to come join us. And that's what's really exciting.

In your scrubs business this year, you have a fit initiative, and that's been a focus for the company. At what point will you have the updated fit of your scrubs fully penetrated in your inventory and your assortment? And how are you managing customer expectations during the transition?

Yes. I mean it's been a long road. My co-founder was our fit model early on, and she's really little. And so we graded off of her bad decision, never do that. And so some of our women's styles were a little too small. This has been a journey for us. I think we're at the final stage of finally, once and for all, getting our fit exactly where we want it to be.

It's interesting because if you talk to health care professionals, they'll say FIGS is the best fit. But over time, there's been some inconsistency once again because of the grading. I don't know how many are in apparel, but this is a thing. So we're excited to move past that. This is going to be, I think, a really exciting thing for the community to understand that once you're this size, you'll always get that size. And we're almost on the other side of this transition. And I think we've been really transparent with our community. Our whole ethos is to be honest, transparent, let them know what we're doing, how we're doing it, when we're doing it. And so that's what we've done throughout this, and we'll continue to do it going forward.

Moving to your lifestyle and your non-scrubwear business. You've got a much wider assortment there versus what was available in 2020 and 2021. But non-scrubwear was a little softer last quarter as a result of fewer launches. How are you thinking about the opportunity there? And what is the sustainable growth rate of that business?

Sure. Actually, I was with Andy Jassy, not to drop names, CEO of Amazon. And he said, "A quarter is 90 days, how much things can change in 90 days?" So I don't know, it sounds like non-scrubs in the 90-day period was soft. But I think if you look over the long term, and that's where we're focused, non-scrubwear is a really huge part of the business, as I was explaining. The opportunity is massive. All of these pieces that you need to do your job, how are we solving problems for you on your underlayers, on your outer layers. This is all opportunity. And I think as more and more health care professionals are with us over time, they'll continue to build that out. Yes, I mean, what is the sustainable growth rate? I'll let Sarah answer that.

Yes. I mean we've talked about all of the opportunities within non-scrubwear and that being an opportunity to expand our wallet share. And we haven't given an exact growth rate yet, but it's also relative to our scrubwear business. So when we look at it in terms of proportion, we're at roughly 20% of the business being non-scrubwear. That will continue to increase over time. But again, relative to scrubwear, we see opportunity within scrubwear to continue to grow as well. So the 2 of them together is a really great combination for us to fulfill on our goal of really building out that whole closet for health care professionals.

Great. Let's turn to marketing. FIGS is set to do its second Olympic marketing campaign next year. What are you most excited about for this event? And how does it build on the momentum of the last and first Olympics campaign? Are there any notable changes in the way that you're utilizing the Olympics for marketing such that you can drive new customer acquisition and retention?

Sure. So for those of you who don't know, we were the first company ever to back the Team USA's medical team. And actually, it was the first company ever for any country. So no company has ever sponsored a medical team behind athletes. That's the coolest thing ever. So we partnered with Team USA and did that, and we had an incredibly successful awesome, amazing campaign. If you haven't seen our commercial, "It takes heart to build bodies that break records," check it out. It's awesome. All right. So that was summer 2024. This partnership goes through 2030 and beyond, we're really excited about continuing to partner with Team USA and their medical team. So Winter Olympics coming up is going to be great. I can't divulge all the incredible details around it, but it's going to be good.

And once again, I mean, people don't talk about it. People don't talk about the health care professional that made that knee, so Lindsey Vonn could ski down the mountain and win a gold medal at age, I don't know how old she is, 45? I mean it's like unheard of. Like, look at Djokovic. Did you guys see that last night? I mean 38 years old. That's health care. That's not him. All right, a little bit of him. That's health care professionals, making sure that his body could perform at that level, right? And so I think that putting a spotlight on the people behind the athlete is a big priority of ours. And there's no bigger stage than the Olympics. Team USA, awesome. And so more to come, but it's been an incredibly exciting partnership and really, really psyched about what we're going to do in Milan and Cortina.

Are you going to use the same music from last time?

Head, shoulders, knees and toes? No, but I thought about it.

From a marketing efficiency perspective, what are you seeing in ROAS trends today? And what's the right level of marketing spend as a percent of sales?

Yes. I would say that we've really been working on building out our marketing. So I would say a few years ago, we were really just bottom of funnel. We've been working to invest in upper funnel last year; this year, building out to be more full funnel. And with that approach, we've seen efficiencies gain in both our CAC rates have been coming down, our ROAS has been going up. And so that's been really exciting for us to see. So we know the strategy is working.

We've also seen, as a result of the combination of really great product with these marketing efforts, a reinvigoration of our customer funnel. So we're seeing positive trends in terms of acquisition and continuing to grow our active customer base. And I would say last year, our marketing expense was at a higher rate just given that Olympic investment. We'll see it come down a little bit this year with the efficiency. But there's also opportunity for us to continue to invest. We have 2.7 million active customers, which is actually pretty small relative to the health care base that's out there. So we do need to invest in awareness, and that's what we're doing, and it's working. So we'll continue to make investments behind that.

Let's switch to your community hubs and the really exciting openings that you have there. You've had some plans to open some community hubs in major metropolitan areas across the country and also hubs for health care workers. Can you walk through some of the learnings that you've taken from your first 2 community hubs and how that will impact your plans for operating the next few?

Do you want to take that?

Sure. Yes. So we have 2 community hubs right now. One of them is in L.A., one of them is in Philadelphia. The one in Philadelphia just opened last year. So we are early on in understanding the data points there, but really great to see that these are both an acquisition and retention vehicle for us. So over 40% of the people that are transacting in the store are new. And so that's really, really awesome stat for us. And we are going to be opening 3 more stores this year, which is really great. So that one will be in Houston. We are also going to open New York and Chicago. So those come on in Q4 of this upcoming year. So we're excited to bring the brand to more cities.

And as we think about next year, we are building a pipeline, and we will give more specific guidance on how many more stores we will open, but we will open more stores. And yes, really excited about this being the way that we can continue to build awareness, expand on building our customer base and just bringing our brand to health care professionals.

I know it's really early days, but are there any productivity or profitability comments that you can make about the community hub?

Well, it's hard because we have 2 stores that are both very different. So one of them is like 1,000 square feet. The other one is 4,000 square feet. So we have different learnings from 2 very different format stores. I think what we will see in the upcoming stores is about 1,500 to 2,500 square feet. And our goal is that these will be profitable and accretive. So that's what we're working towards, and we'll have a lot more data points that come from the next 3 that we open that we can give more visibility and clarity on the metrics going forward.

Switching to another growth driver of your business, TEAMS. You've been executing against targeted investments in the TEAMS business this year. And I think you've already hired some additional leadership for that business, including a sales force. How big is the TEAMS business today? And how large can it become over the next few years in your view?

Yes. So today, I think it's a smaller piece of the business. But it's really exciting, especially from an international perspective. In the U.S., 85% of health care professionals buy their own uniforms. So it's a D2C business. It's why our e-commerce business has been so successful. And that 15%, we talk about teams in the U.S., it's really selling into that 15% of institutions buying on behalf of their team or their employees. But internationally, that number is higher. The B2B part of the market internationally is a bigger slice. And so we're really excited about what we're seeing in terms of TEAMS and international overlap. And we're agnostic. If you want to buy for yourself, you can come to us. If you want to buy for your teams, you also can come to our TEAMS business.

And so really having both platforms with our sales force now going outbound, getting the best institutions to be part of FIGS is really exciting. And it also ties a bit to community hubs because as we're partnering with medical schools, nursing schools, dental schools, as we're partnering with large hospitals, Mayo Clinic, Legal Clinic, why not have I have a community hub, a store within those locations. It makes sense.

And so a lot of synergies between all of these different pieces of the business, and there's never been an amazing B2B platform for health care where you don't have to talk to somebody if you don't want to. You can just go on the site, order for 1,000, 2,000 sets of scrubs, your jackets, your underscrubs. You check out. If you want to talk to somebody, you can, we have a team to do that, but you don't have to. And so that's like a really beautiful thing is having that technology now, 2025, I can't believe no one created it, really makes sense for these large institutions.

Very clear. It's interesting that TEAMS is also a big unlock for international because international has been a real growth driver for your business and has accelerated recently. Can you discuss what trends you're seeing out of the more established international regions versus your newer markets and what you're thinking about from a new market strategy?

Sure. I can touch on it and then if you want to jump in. But I think international, like it's still like I feel like we just started, right? Like, think about what we did in the U.S. in terms of really -- we have 400-plus ambassadors where we have the most influential voices in health care that are like representing us across the health care landscape. We just started that internationally, really localizing our messaging, localizing the brand, getting the right people to represent us in all of these different markets.

And so we're in 45 countries, about half of that, we've basically launched in the last year, and we're just getting going on really getting the brand positioned in the right way by market, getting the right assortment, the right message, the right ambassadors, the right community elements, all in place to go after that. And the right TEAMS piece, right, which conferences are we having a presence at. So there's a lot more to do, but it's exciting to see the trends that we've had in the international business.

Yes. I would say from a geography perspective, we've seen really strong growth rates in Mexico, in Europe as well as the Middle East. We are growing in all of our markets, those ones just outpacing some of the others. Some of our more mature markets, Canada, Australia, still seeing good growth there, acceleration in growth rates versus what we saw in Q1. We know our localization strategies are working to drive those growth rates. And we're early days in really rolling out some of those more localized strategies. So we do see excitement there to continue to drive growth going forward.

How important is the TEAMS business in contributing to your international growth?

I mean most of our international business, most of our international business is not TEAMS. We think that's a huge additional growth lever in the future. But I think even if you get -- it's interesting. Like, even if you get a set for your employer, let's say, you're in the U.K., you're like, "Oh, this isn't great. It's not FIGS." And you're coming at FIGS, you're buying 3 more sets or 5 more sets from us. And so eventually, we'll get that institution to also buy from us. But even if they're getting a set, let's say, it's a TEAMS asset, they're still coming to us directly, D2C. So there's a number of things at play. And once again, our goal, we're agnostic. However you want to buy from us, we want to be where you want us to be. And so that's the goal.

Very clear. Switching gears to tariffs and margins. You recently updated your assumptions for tariffs. How should we be thinking about the potential headwind from tariffs into next year as you annualize that cost into your inventory? And how are you thinking about the potential time line for full mitigation?

Yes. So I would first start with just sharing 85% of our business is in the U.S. So we do have quite a bit of exposure to tariffs. The other piece is really on our average costing. So it's going to take some time for those tariffs to work their way into the P&L. So in 2025, each quarter will get progressively more impacted by tariffs, and that will have an impact into 2026. But we've seen success so far and have a good road map ahead for how we'll mitigate some of those tariffs.

We've been successful in going after both inbound and outbound freight opportunities, specifically within gross margin. We have worked with our vendors in terms of costing, seeing some opportunities there, both inbound and outbound, as I mentioned before. I would say that there are certain duty strategies that are part of our road map to look out for. And how we're thinking about tariffs is we may not fully mitigate all of it within gross margin. We're looking to mitigate it throughout the P&L. So from an adjusted EBITDA perspective, right now, we've guided 2025 to about 8.5% to 9%, and we'll be working to improve that into 2026. So while the impact of tariffs will be bigger in 2026, we do see the opportunity to mitigate that throughout the P&L and deliver margin expansion into next year.

That's exciting. Great to hear. One of the opportunities for margin is in selling expense leverage within your SG&A. Can you talk about how big the opportunity is for you to flex those costs down? What can be taken out of the cost base? What temporary costs are rolling off? And where do you see the biggest opportunity?

Sure. So last year, we completed a large transition into a new distribution center. So our costs last year included quite a bit of transitory costs. When we opened the distribution center, we did have some learnings and efficiencies that needed to be scaled. And so as we've come into 2025, we've really been working on improving the efficiency and operations of that. We've now ramped to a place where we're no longer just setting up. I would say that we've stabilized there. So we've seen some efficiencies come through in our Q2 results as a result of getting to that stabilized point.

We've also been really working on our outbound rates. And so we've been working with expanding our carrier network, working on pricing, and we've seen benefit from going after those strategies, and there's more ahead for us to continue to work on. So with this new distribution center, we have built this to last for several years. So we are running at 50% to 60% capacity. So over time, as the business continues to scale, there will be leverage opportunities with the fixed costs that we have with the distribution center. We can continue to work on our efficiencies of operating within the space given that we're still new there. And there's still opportunities for us to go after within outbound. So those costs are coming down.

We are saying for next year, we're probably going to be a year ahead of where we thought we would be by next year, but that should be more in line with the rates, the 23-ish percent rates, that we had seen in 2023. So really happy with the progress that we've seen there. It's moved faster than we expected and still building a really great road map for us to go after there that we can continue to scale down those costs over time.

Great. One question that we're asking all companies at our conference is around pricing. And you've spoken about pricing as the last resort given the inflation sensitivity of some of your core customers. But could you share if you have any pricing increases planned for the second half of this year or into 2026?

Yes. So at this point, there's nothing factored into our guidance around pricing. As I kind of mentioned, we're looking to offset tariffs with pricing being more of a last lever. We've seen really great success with our mitigation opportunities. We have a good road map ahead. And so we will continue to evaluate pricing. But at this point, we've not factored anything in.

Can you talk to us about the expectations for inventory growth into the back half of this year? Do you expect any disruption in shipments or timing associated with tariff buys?

Sure. So in terms of disruptions, not anticipating anything. I think we've built out a good risk mitigation strategy should anything come in, but not foreseeing anything at this point. In terms of inventory, our inventory balance grew 8% from a unit perspective, and that is compared to the 6% growth rate that we delivered. From a dollar perspective, it did grow by more than that, and that is really a reflection of the product mix shift that we're investing into, particularly within scrubwear and non-scrubwear. And there was a small amount related to tariffs.

So as we go throughout the year, we are buying with conviction around the innovation and newness that we have from a product perspective. So we do think that unit growth will slightly outpace sales growth. But then on the dollar side, we'll have a much larger impact as tariffs come through in the latter part of the year.

Great. One question on promotionality. You've been intentionally pulling back on promotions. What are your plans for Black Friday and holiday? And what's an appropriate level of promotions for the business following the tests that you've done this year?

Yes, for sure. So just the journey here is that we have been strategically and purposely pulling back on promotion. We have the ability to do that because we've really seen strength in our underlying performance. So our business as usual, non-promo days, is really seeing good growth rates as a result of our investments into product and marketing. So using this as an opportunity to pull back in promo and really set the brand up for long-term strength. And so this is a purposeful decision. It's had some negative impact on total sales. And so that we've guided to.

And our promotional strategy has really been about pulling back on the promos that were more site-wide. We're going to continue to have promos but have it be specific to events that celebrate health care professionals. So Nurses Week is a promo that is unique to health care professionals and us. So we're going to promo at that time there. We've done Match Day, which is another specific event for health care professionals. So we promo-ed around that. And Black Friday, Cyber Monday is something that we will continue to do. So that will remain, and we will pull back on some of the promos in the back half of the year outside of Black Friday, Cyber Monday. So how we're structuring that is very similar to what we've done in previous years. No major changes planned there.

Great. With that, I'm afraid we are out of time. Trina, Sarah, it's so great to spend time with you today. Thank you for your time and for this session, and thanks for everyone in the audience for tuning in.

Thank you.