FIGS (FIGS) Q4 2025 earnings review
Growth Explodes, But Tariffs and Write-offs Erode Gross Margins
FIGS delivered a massive top-line beat in Q4, with revenue surging 33% YoY to $201.9M. This represents a dramatic acceleration from the mid-single-digit growth seen earlier in the year. The company effectively outran the 'COVID overhang', driving a 9.4% increase in active customers and scaling international sales by 55%. However, profitability metrics flashed mixed signals. While immense operating leverage pushed Net Income up to $18.5M (a 9.2% margin), Gross Margin suffered a severe contraction, dropping 440 basis points to 62.9% due to tariffs, a lack of duty drawbacks, and a sudden $5.6M inventory write-off. Looking ahead, management expects sustained double-digit growth in FY26 and increased profitability despite looming 15% global tariffs.
🐂 Bull Case
Revenue growth accelerated from 8% in Q3 to 33% in Q4, with guidance pointing to a low-20% expansion in Q1 2026. The core US market reawakened with 28.7% growth, proving brand momentum.
Operating expenses as a percentage of revenue plummeted to 53.6% from 61.4% a year ago. The ability to control SG&A allowed Net Income to surge 881% to $18.5M, fully absorbing the gross margin hit.
🐻 Bear Case
Gross margin dropped sharply to 62.9%. With management explicitly calling out the latest announcements for 15% global tariffs, the cost of goods sold will remain under intense structural pressure.
A sudden $5.6 million inventory write-off in Q4 raises questions about product planning and obsolescence, particularly as total inventory balances continue to climb.
⚖️ Verdict: 🟢
Bullish. The sheer volume of consumer demand and accelerating top-line growth across all geographies dramatically outweighs the tariff-induced gross margin compression. The company's fixed cost leverage is now translating strong sales into real bottom-line profits.
Key Themes
International Expansion Hits Hyper-Growth
Accelerating. International net revenues grew an impressive 55.1% YoY to $37.7M, completely breaking out from the 11-20% growth rates seen in prior quarters. Rest of World now represents 18.6% of total Q4 sales, validating management's 'go broad and go deep' global expansion strategy and successful recent launches in Asia and Latin America.
Core Scrubwear Engine Re-Ignites
Accelerating. Scrubwear net revenues surged 35.1% YoY to $154.9M. This is a massive break in trend from the sluggish single-digit growth (2-8%) seen over the last year. The core product line is demonstrating immense pricing power and volume demand, driven by product mix and higher units per transaction.
Basket Sizes Expanding
Accelerating. Average Order Value (AOV) hit $120, up 6.2% YoY. This growth is accelerating from the mid-$110s seen earlier in the year. Management noted that this was driven by higher average unit retail, favorable product mix, and lower discount rates, proving customers are willing to spend more per transaction without needing heavy promotional push.
Inventory Write-Off Hits Gross Margins
Reversing. A $5.6 million inventory write-off was recorded in Q4, representing roughly 2.7% of total quarterly revenue. Stripping out the write-off, gross margin would have been ~65.6%, meaning operations and tariffs still dragged margins down by ~170 bps. The write-off itself is a significant red flag requiring monitoring to ensure it is a one-time clean-up rather than a symptom of poor merchandising.
Macro Picture: Overcoming the COVID Overhang and Fighting Tariffs
The long-standing 'COVID overhang' narrative has finally been broken, evidenced by the explosive top-line volume. However, a new macro headwind has taken its place: global trade policy. Gross margins are actively absorbing higher tariffs, and management explicitly structured FY26 guidance around the expectation of sweeping 15% global tariffs. Despite this, they project margin expansion, heavily relying on downstream cost cuts.
Non-Scrubwear Lagging Behind Core Momentum
Stable. While Non-Scrubwear grew a healthy 26.4% to $47.0M in Q4, it notably lagged the 35.1% growth of the core Scrubwear segment. Given management's previous focus on head-to-toe outfitting and expanding categories like outerwear and footwear (such as ArchTek compression socks), the relative underperformance suggests new categories are not yet keeping pace with core uniform replenishment.
Other KPIs
Accelerating efficiency. This metric plummeted from 61.4% in 24Q4 and 63.6% in 25Q3. The company demonstrated massive fixed cost leverage, alongside lower fulfillment expenses and stock-based compensation. This SG&A discipline is the primary reason Net Income exploded despite gross margin contraction.
Accelerating. Grew 9.4% YoY, an excellent break from the sluggish 3-4% growth seen in H1 2025. Customer acquisition funnels are clearly working again, heavily contributing to the overall 33% revenue surge.
Decelerating. Down from $64.1M in FY24, despite higher Net Income. This highlights a buildup in working capital (inventory rose to $127.9M from $115.7M) and heavy capital expenditures related to expansion initiatives.
Guidance
Decelerating from Q4's blistering 33% pace, but a vast structural acceleration compared to the initial FY25 guidance (which originally called for flat to down revenues before ultimately delivering 13.6%). Management is adopting a prudent mindset while baking in core growth, International scaling, TEAMS B2B, and Community Hub expansions.
Decelerating sequentially from Q4's 33%, but significantly accelerating against 25Q1's 4.7% growth. Proves that the momentum exiting Q4 was not just a holiday anomaly but a sustainable shift in demand.
Accelerating vs FY25's actual 11.8%. Despite explicitly calling out expectations for a 15% global tariff environment, management expects profitability to increase. This strongly implies heavy reliance on sustained SG&A leverage and supply chain optimization to protect the bottom line.
Key Questions
Inventory Write-off Details
What specifically drove the $5.6 million inventory write-off in Q4? Was this related to a specific failed product category, or a broader obsolescence issue associated with the pre-tariff inventory pull-forward?
Tariff Mitigation Execution
Guidance projects an expansion in Adjusted EBITDA margins (to 12.7%-12.9%) despite the assumption of 15% global tariffs. With pricing power previously described as a 'last resort', what are the exact cost-cutting mechanics driving this margin expansion?
Durability of Demand Re-acceleration
U.S. revenue growth swung from low single digits to 29%. How much of this was driven by deferred replacement cycles finally breaking versus successful new product introductions?
International Run-Rate Margins
With International revenue growing 55%, how accretive are these sales to the bottom line right now? Are international fulfillment costs still acting as a drag on overall operating leverage?