Figs: A Rare, Profitable IPO

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( — June 21, 2021) — Figs  (NYSE: FIGS), the maker of designer scrubs and medical apparel, soared on its public debut last week Thursday. It is the first initial public offering (IPO) accessible to retail investors, through Robinhood’s new IPO Access product.  Shares leaped 36%, closing at $30.02, having been priced at $22 per share. Figs ended the day with a valuation of around $6 billion and raised $580.8 million through the IPO. Figs achieved profitability in 2019 and sustaining it into 2020. In this article, we will discuss the company’s prospects and what they mean for the investor. 

Key Financial Results

According to the firm’s S-1/A filing, in 2020 year-over-year, net revenue grew by a remarkable 138%, from $110.5 million in 2019 to $263 million in 2020. Profitability seems to be continuing into 2021, with the firm earning net revenue of $87.1 million in the first quarter of 2021, compared to $32 million in the same period in 2020, for a growth rate of 172%. 

Not only has the firm grown its revenue, but it has also grown its core earnings. Core earnings have grown from $1 million in 2019 to $51 million in 2020. 

The purpose of capital markets is to allocate capital to those investments in which it will be used most efficiently. Consequently, return on invested capital (ROIC) is highly correlated with shareholder value creation. It is important then to also note the improvement in ROIC  from 7% in 2019 to 115% in 2020. The company has become dramatically more efficient in deploying capital. 

Growing in  Large Addressable Market

As Figs points out in its S-1/A, it is the largest direct-to-consumer (DTC) healthcare apparel platform as well as being in the the largest and fastest growing  industry in terms of job creation, in the United States. 

The company, using a Frost & Sullivan study, estimates that its total addressable market (TAM) in the United States in 2020 was $12 billion. WIth a revenue of $263 million that year, the company had a small fraction of that TAM, at 2%. Based on Forbes’ data and Figs’ 2020 revenue, the company has around 15% of the U.S. scrubs market. 

Frost & Sullivan’s study suggests that Figs’ U.S. TAM will grow by a 6% compound annual growth rate (CAGR) over the next five years. In comparison, Research and Markets expects the global apparel market to grow by a CAGR of just under 5.5% in the same period. 

Figs Is Building a Moat in a Hyper Competitive Market

As Invisalign dentists know, in a hyper-competitive market, you have to build a compelling value proposition in order to earn economic profits and build a moat around your ability to earn profits. 

We have painted a picture of a large and fast-growing TAM. Naturally, this attracts competition from firms who, like Figs, see the opportunity to earn massive economic profits by gaining minimal viable market share and beyond and erecting barriers to entry. The resulting competition means that few if any firms in such competitive industries ever earn economic profits. We have already shown that Figs is one of those few profitable firms in a sea of unprofitable businesses. 

Figs are disrupting the apparel business by trying to turn a product that has existed largely as a commodity produced by firms with little-to-no pricing power, into a distinct, branded product that can earn economic profits in excess of its rivals. Disrupting the industry is only one side of the equation. The other side is building barriers to entry. The number of rivals is long and includes traditional wholesalers such as Careismatic, Barco Uniforms, Landau Uniforms, and the Superior Group of Companies; healthcare retailers such as Scrubs & Beyond and Uniform Advantage; and DTC brands such as Jaanuu. 

Caresimatic is by far its biggest competitor, with around 40% of the U.S. scubs market compared to around 15% for Figs. Many of Figs competitors are privately held, but there is enough data to suggest that the company’s business model has given it higher levels of profitability than its rivals. 

The company’s ROIC is the highest in the apparel and accessories sector, ranking higher than Lulu’s (25%), Nike’s (21%), Ralph Lauren’s (4%), and others. The market-cap weighted peer average ROIC for the 30 largest firms in the sector is 16%. 

Figs enjoys a after-tax profit (NOPAT) margin of 20%, which is higher than the market-cap weighted peer average NOPAT margin of 9%. Its invested capital turns are 5.8, compared to 1.6 for the market-cap weighted peer average. This shows that the company displays greater operational efficiency than its peers. 


Despite superior economics to its rivals, or perhaps because of it, the company is currently priced to perfection. The markets have correctly built in Figs’ potential into the pricing, leaving little room for alpha. It is best at this point to wait until the price comes down by 30% or so before an investor should consider buying the Figs stock.