FIGS’s SWOT analysis: apparel firm’s stock faces growth challenges

FIGS, Inc. (NYSE:FIGS), a U.S. specialty retail company with a market capitalization of $715 million operating in the apparel and footwear industry, has been navigating a complex market environment characterized by both opportunities and challenges. The company, known for its premium healthcare apparel, has demonstrated resilience with impressive gross profit margins of 67.35% while facing headwinds in others. According to InvestingPro analysis, FIGS currently appears undervalued based on its Fair Value estimate. This comprehensive analysis examines FIGS’ current position, strategic initiatives, and future prospects based on recent financial reports and analyst insights.

Financial Performance

FIGS reported strong results for the first quarter of 2025, surpassing its own sales and adjusted EBITDA guidance. The company demonstrated positive growth of 3.02% across various regions and product categories, indicating robust demand for its offerings. InvestingPro data reveals that FIGS maintains a strong financial position with a healthy current ratio of 3.96, indicating excellent ability to meet short-term obligations. This performance is particularly noteworthy given the challenging economic environment many retailers have faced in recent years.

Despite the encouraging Q1 results, FIGS management has adopted a cautious stance regarding its full-year 2025 outlook. The company anticipates a low-single digit decline in sales for the fiscal year, a projection that has raised some eyebrows given the strong start to the year. This conservative guidance suggests that FIGS executives may be anticipating potential headwinds in the latter part of the year or are taking a prudent approach to managing investor expectations.

The contrast between the strong Q1 performance and the conservative full-year guidance highlights the volatility and uncertainty in the retail sector. It also underscores the importance of carefully managing growth expectations in an industry subject to rapid shifts in consumer behavior and economic conditions.

Strategic Initiatives

FIGS has been implementing several strategic initiatives aimed at strengthening its market position and improving its financial performance. One key focus has been the reduction of promotional activities. InvestingPro analysis highlights several positive factors, including the company’s strong cash position relative to debt and management’s active share buyback program. These are just two of the numerous insights available to Pro subscribers, with many more ProTips providing deeper analysis of FIGS’ financial health and market position. This strategy is designed to boost top-line growth and enhance brand equity, positioning FIGS as a premium player in the healthcare apparel market.

By reducing promotions, FIGS aims to maintain higher average selling prices and protect its margins. This approach could potentially lead to improved profitability in the long term, assuming it does not significantly impact sales volume. However, it also carries risks, as consumers have become accustomed to frequent promotions in the retail sector, and a reduction in discounts could lead to a decrease in sales if not managed carefully.

Another significant initiative has been the construction of a new distribution center. While this project has incurred substantial costs in the short term, it is expected to improve operational efficiency and support future growth. The completion of this facility should enable FIGS to better manage its inventory, reduce shipping times, and potentially lower long-term distribution costs.

Market Position

FIGS operates in a niche market within the broader apparel industry, focusing on premium healthcare apparel. This specialization has allowed the company to build a strong brand identity and cultivate a loyal customer base among healthcare professionals. However, it also means that FIGS’ growth potential is somewhat limited by the size of its target market.

The company’s efforts to enhance its brand equity through reduced promotional activity and strategic marketing initiatives are aimed at solidifying its position as a leader in this niche. By emphasizing quality and exclusivity, FIGS hopes to differentiate itself from competitors and justify premium pricing.

However, FIGS faces challenges in its competitive landscape. The company experienced stock-outs in its footwear category during the third quarter of 2024, which negatively impacted sales. This highlights the importance of effective inventory management in maintaining market share and customer satisfaction.

Future Outlook

Analysts project a mixed outlook for FIGS in the coming years. While the company has demonstrated strong performance in certain areas, there are concerns about its ability to maintain growth in a potentially saturating market. Currently trading at a P/E ratio of 696, FIGS commands a premium valuation, though InvestingPro’s comprehensive analysis suggests the stock may still be undervalued. Want to understand why? Access the full Pro Research Report, available exclusively to subscribers, for detailed insights into FIGS’ valuation metrics and growth potential.

The estimated earnings per share (EPS) for the fiscal year 2025 is $0.08, with projections increasing to $0.14 for the following fiscal year. This suggests that analysts expect FIGS to improve its profitability over time, possibly as a result of its strategic initiatives taking effect.

However, the conservative guidance provided by FIGS management for FY2025 indicates that the company may face challenges in achieving consistent growth. The anticipated low-single digit sales decline for the year suggests that FIGS may be reaching a plateau in its current market or facing increased competition.

Bear Case

How might reduced promotional activities impact FIGS’ sales?

FIGS’ strategy to reduce promotional activities could potentially lead to a decrease in sales volume. Many consumers have become accustomed to frequent discounts and promotions in the retail sector, and a reduction in these offers might result in some customers seeking alternatives or reducing their purchase frequency. The company’s conservative guidance for FY2025, projecting a low-single digit sales decline, may partly reflect concerns about the impact of this strategy on overall sales performance.

Additionally, in a competitive market, FIGS’ reduced promotional activity could provide an opportunity for rivals to capture market share through more aggressive pricing strategies. If competitors maintain or increase their promotional activities while FIGS pulls back, it could lead to a shift in consumer preferences and potentially erode FIGS’ market position.

What risks does FIGS face in its competitive landscape?

FIGS operates in a niche market within the broader apparel industry, which presents both opportunities and challenges. While the company has built a strong brand in the healthcare apparel sector, it faces the risk of market saturation. As FIGS grows, it may find it increasingly difficult to maintain high growth rates within its specialized market segment.

Moreover, the company’s focus on premium pricing and brand equity makes it vulnerable to new entrants or existing competitors who may offer similar products at lower price points. The healthcare apparel market could attract more competition as other apparel companies seek to diversify their offerings, potentially pressuring FIGS’ margins and market share.

FIGS has also experienced operational challenges, such as stock-outs in its footwear category, which negatively impacted sales in the past. These inventory management issues could recur, affecting customer satisfaction and sales performance. As the company expands, maintaining efficient operations and consistent product availability across all categories will be crucial to retaining its competitive edge.

Bull Case

How could FIGS’ strategic initiatives drive long-term growth?

FIGS’ focus on reducing promotional activities and enhancing brand equity could lead to significant long-term benefits. By positioning itself as a premium brand, FIGS may be able to command higher prices and attract a loyal customer base that values quality over discounts. This strategy could result in improved profit margins and more stable revenue streams over time.

The company’s investment in a new distribution center is another potential driver of long-term growth. Once fully operational, this facility should improve FIGS’ inventory management, reduce shipping times, and potentially lower distribution costs. These operational efficiencies could translate into better customer satisfaction, increased repeat purchases, and ultimately, stronger financial performance.

Furthermore, FIGS’ strong performance in Q1 2025, with positive growth across various regions and categories, suggests that the company has the potential to expand its market reach. If FIGS can successfully leverage its brand strength to enter new geographic markets or expand its product lines within the healthcare apparel sector, it could unlock new avenues for growth.

What potential does FIGS have for market expansion?

Despite operating in a niche market, FIGS may have significant potential for expansion. The global healthcare industry is growing, driven by factors such as aging populations and increased healthcare spending in many countries. This trend could create opportunities for FIGS to expand its customer base internationally.

Additionally, FIGS could explore adjacent markets within the healthcare sector. For example, the company could develop specialized apparel for other healthcare-related professions or expand into medical accessories and equipment. By leveraging its brand recognition and existing customer relationships, FIGS could potentially diversify its product offerings and tap into new revenue streams.

The company’s focus on quality and brand equity also positions it well for potential partnerships or collaborations with healthcare institutions, medical schools, or other organizations in the healthcare ecosystem. Such partnerships could provide FIGS with new channels for growth and strengthen its position as a leading brand in healthcare apparel.

SWOT Analysis

Strengths:

• Strong brand recognition in healthcare apparel
• Positive growth across various regions and categories
• Successful Q1 2025 performance exceeding guidance

Weaknesses:

• Conservative full-year 2025 guidance suggesting potential challenges
• Vulnerability to inventory management issues (e.g., past stock-outs)
• Reliance on a niche market segment

Opportunities:

• Potential for international expansion
• Possibility of entering adjacent healthcare-related markets
• Long-term benefits from new distribution center and operational improvements

Threats:

• Increasing competition in the healthcare apparel market
• Risk of market saturation in core segments
• Potential negative impact of reduced promotional activities on sales volume

Analysts Targets

• Barclays (LON:BARC) Capital Inc. (May 13, 2025): USD 5.00, Equal Weight
• Barclays Capital Inc. (March 5, 2025): USD 4.00, Equal Weight
• Barclays Capital Inc. (November 12, 2024): USD 4.00, Equal Weight

This analysis is based on information available up to May 25, 2025, and reflects the most recent data and analyst projections for FIGS, Inc.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on FIGS. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore FIGS’s full potential at InvestingPro.

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