FIGS plans to go public at a valuation of around $2.8 billion. Financial comparisons to valuation of similar companies are one way to judge FIGS’ valuation. Relevant metrics needed for these assessments include enterprise value (EV) and earnings before interest, taxes, depreciation, and amortization (EBITDA). The only comparable healthcare apparel company that isn’t private is Superior Group of Companies (SGC). Public comparables to FIGS are apparel companies like Nike and Lululemon.

All monetary values in billions of dollars. Data is for most recent fiscal year as of Oct. 14, 2021.

FIGS is priced higher on a EV/Sales and EV/EBITDA basis than SGC. When comparing FIGS to Lululemon, FIGS actually isn’t overvalued on a EV/Sales multiple and is perhaps fairly valued on a EV/EBITDA. Overall, FIGS is priced higher on average than its publicly-traded peers. The premium placed on the company could be explained by its superior and cost-efficient direct-to-consumer business model. FIGS also has a strong market outlook and growing market share, which bolsters its  overall growth prospects. Additionally, most recent initial public offerings (IPOs) have seen companies going public with higher prices than their public peers. FIGS seems to be continuing this trend.

Most of FIGS’ public market comparables went public many years ago in a completely different environment compared to today’s reality. Data on more direct, still-private competitors is scarce, which makes a direct comparison of FIGS’ valuation difficult. Based on available data, FIGS looks to be slightly overpriced, which is not uncommon for a company that’s going public at this time.

The healthcare apparel industry is a large and fragmented market with numerous similar-looking, unbranded scrubs. FIGS changed the standard by branding and de-commoditizing scrubs, building a community and lifestyle around its product. Amongst legacy brands like Careismatic Brands, Barco, and others, Jaanuu is the only other venture-backed direct-to-consumer brand that followed in FIGS’ wake.

According to the Bureau of Labor Statistics, the US healthcare sector is the largest and fastest growing job segment in the United States. More than 20 million US professionals worked in healthcare in 2020, and employment is expected to grow 16% from 2020 to 2030. A Frost & Sullivan study commissioned by FIGS indicates that the healthcare apparel industry is expected to grow annually by 6.1% over the next five years. It also estimates the total addressable market (TAM) for the healthcare apparel industry to be $12 billion in the U.S. and $79 billion internationally. Given the company’s revenues of $263 million in 2020, FIGS has a market share of just 2% for the healthcare apparel industry. A separate Forbes article on FIGS indicated the company potentially owns around 15% of the direct scrubs market compared to Careismatic’s 40% share of the market. 

Lastly, healthcare apparel purchasing has shifted from institutions to the individual, with around 85% of all medical professionals now purchasing their own uniforms. As medical scrubs are worn frequently, they need to be replaced continuously, resulting in highly predictable, recurring demand for the product. Overall, FIGS’ target market is decently sized and growing at a stable pace.

Co-CEO Heather Hasson originally went to school for medicine before transitioning into a career in design. She ran her own high-end handbag company in Italy before returning to the US. A conversation with a nurse friend sparked the idea for FIGS when Hasson realized that scrubs were still unattractive, non-fitted uniforms that professionals wore for hours on end. 

Co-founder and co-CEO Trina Spear has a finance background. She worked primarily on Wall Street at Citigroup as an investment banker and later at Blackstone where Hasson recruited her to help develop FIGS. Both FIGS founders were able to combine their strong and unique backgrounds to help build FIGS to the success it is today.  

FIGS’ board of directors contains a diverse group of independent advisors as well as previous investors. FIGS has six board members including Heather Hasson and Trina Spear who serve as directors. Other board members include J. Martin Willhite, Sheila Antrum, Michael Soenen, and Christopher Varelas. 

Traditionally, scrubs were plain cotton uniforms that healthcare professionals wore without much thought. FIGS modernized scrubwear and other apparel for healthcare professionals with a combination of its proprietary FIONx fabric, an innovative business strategy, and a unique merchandising model. FIONx is a four-way stretch, anti-odor, anti-wrinkle, and moisture-wicking fabric that serves as the backbone of FIGS’ scrubs. The company’s scrubs also feature easy-to-access zippered pockets (an underrated feature) that can hold numerous items like stethoscopes, scissors, smartphones, and more. The end result are scrubs that are more comfortable, durable, functional, and stylish. 

FIGS has also adapted as scrubs purchases changed over time. Previously, healthcare institutions would purchase scrubs for their employees. Today approximately 85% of all healthcare professionals buy their own uniforms. FIGS accordingly adopted a digitally native direct-to-consumer (DTC) business model, resulting in higher margins and a more loyal customer base. The company owns all aspects of the customer experience and delivers an elevated, personalized, and seamless experience. The company’s DTC model results in 98% of its products being sold via its website or app. FIGS also gathers high quality data on its customers, which it has used to efficiently acquire and retain customers. The company’s strong customer retention is indicated, per the S-1, by impressive rates of repeat purchases. For customers acquired between 2017 and 2019, 50% purchased a second time, 63% purchased a third time, and 70% purchased a fourth time.  

FIGS also has a very strong and effective merchandising and product launch model. The company launches limited edition colors or styles on a near-weekly basis, driving recurring traffic to its site. This strategy drives traffic for both limited edition offerings and core offerings as, on average, 90% of sales on launch days are core styles. Overall, the company’s 13 core scrubwear styles represented approximately 82% of 2020’s net revenues. The other 18% was generated by limited edition scrubwear as well as other lifestyle apparel and non-scrub offerings. Additionally, 62% of FIGS’ net revenues in 2020 came from repeat customers.  

FIGS also stands out from legacy scrub manufacturers for embracing modern marketing techniques. The company has built a strong and loyal community of customers whom it refers to as “Awesome Humans.” Its Ambassador Program touts more than 250 influencers who help FIGS reach its core customers. The company’s strong brand is demonstrated by its high Net Promoter Score of +81. FIGS’ NPS blows away its peers like Lululemon’s 46 and Nike’s 30.

In short, FIGS essentially brought the healthcare apparel market into the modern day with its functional and stylish scrubwear. The company is very differentiated from its competitors, which is especially impressive for a consumer product goods business. FIGS looks well-positioned to continue generating customer stickiness and brand loyalty.

FIGS generates 82% of its revenue from its 13 core scrubwear lines. The other 18% comes from limited edition offerings, lifestyle apparel, and other “non-scrub offerings.” The company has seen compelling growth in recent years as well. 

From the company’s prospectus, FIGS has achieved the following growth from 2019 to 2020:

• Increased its “community” of active customers by 118% from 0.6 million to approximately 1.3 million
• Net revenues increased 138% from $110.5 million to $263.1 million
• Gross margin increased from 71.8% to 72.3%
• Net operating income went from a loss of $0.3 million to positive gains of $57.9 million
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased from $1.7 million to $69.1 million 
• EBITDA margins increased from 1% to 26.3%
• Operating cash flow increased from $6.5 million to $21.7 million
• Free cash flow increased from $1.8 million to $19.5 million

FIGS has also been efficient in scaling its sales and marketing. While revenue more than doubled from 2019 to 2020, marketing expenses only increased by 17%. Marketing expenses are also less than 15% of 2020’s revenues. That’s impressive as consumer product goods companies typically allocate 22% of revenue towards marketing. The company’s marketing efficiency really highlights how passionate its customers are. 

FIGS’ recent performance continues to be strong. FIGS was net income positive in the first quarter of 2021, and its net income margin was slightly more than 13%. From a trailing-twelve-months (TTM) perspective, FIGS’ net income margin is 18%. That figure is far better than Lululemon and Nike’s TTM net income margins of 14.2% and 8.9%, respectively. FIGS’ TTM operating margin is also higher at more than 22%. For comparison, Lululemon’s and Nike’s operating margins are 19.7% and 11.4%, respectively. FIGS’ financial performance and traction is the story of a company that is scaling efficiently and is more profitable than its competitors in the apparel space. 

FIGS is the rare investment that has very few risks associated with it. What risks there are primarily arise from FIGS’ status as a consumer product goods (CPG) company. Like most CPG companies, FIGS faces notable competition. Careismatic Brands holds the majority share of the scrubs market. FIGS needs to overcome major incumbents in order to continue gaining market share.

Careismatic has actually filed lawsuits against FIGS, claiming its marketing misleads customers about the protection provided by its apparel. FIGS has since removed some of these marketing statements from its website. FIGS also ran an ad that was controversial and received widespread criticism. FIGS relies heavily on its branding and image, so the company will need to carefully maintain its reputation while ensuring that its marketing does not become ineffective. 

As a consumer brand, FIGS also runs the risk of knock-off brands and products coming into its current market. If another company designed and created a similar product at a cheaper price, it would negatively impact FIGS.

Investors should note that the majority of FIGS shares being offered in its initial public offering (IPO) are from existing shareholders. While FIGS is offering approximately 5.9 million shares, majority shareholder Tulco, LLC is selling approximately 16.6 million shares in the IPO. FIGS will not receive any proceeds from the sale of shares from Tulco, LLC. Thus, the majority of the IPO proceeds will reward existing shareholders and not help the company itself. However, it is not unusual to see early investors sell their stakes during IPOs, so this does not pose a huge risk to FIGS. Overall, FIGS suffers from the standard risks for late-stage companies but is overall a low-risk investment.

FIGS holds just 2% of the domestic healthcare apparel market and 15% of the domestic scrubs market, so growing its current customer base is an obvious opportunity. The company’s most interesting growth opportunities lie in pursuing international markets and in expanding into other professions. The global healthcare apparel market is estimated to be $79 billion in 2021. If FIGS were able to garner the same 2% market share of the global healthcare apparel market, it would be a massive expansion of revenue. Fortunately for FIGS, it has started to expand internationally. The company started selling its products in Australia, Canada, and the U.K. in 2020. While revenue from its international markets are small, the company could see long and continuous growth if it’s able to expand quickly and successfully abroad. 

Expanding into other uniform-wearing markets is the other compelling growth opportunity for FIGS. The company’s prospectus states “there are 40 million people outside healthcare in service-based industries that traditionally wear uniforms every day.” Like the healthcare industry, these industries have technical specifications for their uniforms. If FIGS is able to create the same stylish, comfortable uniforms across multiple industries and across multiple geographies, the company’s opportunities for growth are clear and massive. Compound the opportunities with FIGS’s proven ability to generate impressive customer loyalty and retention and FIGS has the potential to become even more successful than it is today.

FIGS is the Nike/Lululemon of the healthcare apparel industry. The company has built a massive, loyal following of customers by creating high-quality, high-performance scrubs with a very strong brand. FIGS has truly disrupted an industry dominated by stodgy, old competitors and brought the healthcare apparel industry into the modern age. 

FIGS is strong from multiple perspectives. The company has successfully built a very strong and well-differentiated brand with impressive customer loyalty. It has already begun to expand internationally, and there is plenty of room in the market for FIGS to widen its niche. Perhaps most importantly, FIGS is financially rock solid. All of these factors make FIGS a promising investment opportunity.

Given the company is modernizing a space dominated by older, less attractive competitors, FIGS’ stock should be seen as an attractive and unique opportunity for investors. Therefore, FIGS is a Deal to Watch.

For questions regarding the KingsCrowd Analyst Report for this company, please reach out to support@kingscrowd.com.

Analysis written by Francis Vu.