FIGS, Inc. (FIGS) Q4 2021 Earnings Call Transcript

FIGS, Inc. (FIGS 0.21%)
Q4 2021 Earnings Call
Mar 08, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon and thank you for standing by. Welcome to the FIGS fourth quarter 2021 earnings conference call. [Operator instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from FIGS. And as a reminder, this call is being recorded.

I would now like to introduce your host for today's call, Carrie Gillard, vice president of investor relations. Ms. Gillard, please go ahead.

Carrie Gillard -- Vice President, Investor Relations

Good afternoon and thank you for joining today's call to discuss FIGS fourth quarter and full year 2021 results, which we released this afternoon and can be found in our earnings release and shareholder letter on the FIGS investor relations website at ir.wearfigs.com. Presenting on today's call will be Heather Hasson and Trina Spear, our co-chief executive officer, and Daniella Turenshine, our chief financial officer. As a reminder, remarks on this call that do not concern past events should be considered forward-looking statements. These may include predictions, expectations or estimates, including about our future financial performance, market opportunity, business plans and operational capacity.

Forward-looking statements involve substantial risks and uncertainties, and actual results could differ materially from those mentioned. These risks, among others, are discussed in our shareholder letter and SEC filings, which we encourage you to review. You should not place undue reliance on any forward-looking statements, which speak only as of today and which undertake no obligation to update or revise. Finally, this call will contain certain non-GAAP metrics, which we believe are useful supplemental measures for understanding our business.

Reconciliations of these non-GAAP measures to their most comparable GAAP measures are included in the shareholder letter we released today on the investor relations portion of our website. Now, I'd like to turn the call over to Heather Hasson, co-chief executive officer of FIGS.

Heather Hasson -- Co-Chief Executive Officer

Thanks, Carrie. Good afternoon, everyone. We appreciate you joining us for our fourth quarter and full year 2021 conference call. Before we get started, I just want to say how honored we are to serve our healthcare community every day.

They are why we exist. Now, for our results. Our financial performance demonstrates the incredible power of our business model as we delivered an exceptional combination of revenue growth, profitability and free cash flow. In the fourth quarter, our net revenues were up 43% to $129 million, which was larger than our entire business in 2019.

This is an amazing achievement that underscores the rapid growth and scale that we have accomplished in the past two years. For the full year, our net revenues increased to $420 million, up 62% on an adjusted basis, driven by both strong acquisition of new customers and increasing annual spend from our existing customers. Across our key metrics, our active customer base grew 46% to 1.9 million. Net revenues per active customer increased $22 year over year and $39 over two years.

We delivered a 12% increase in our AOV to $105. We increased our repeat customer revenues to 68%, up from 62% in 2020. Our nascent international business tripled, and we achieved this growth while also generating $105 million in adjusted EBITDA, a 25% adjusted EBITDA margin. We delivered this outstanding performance through product innovation, disciplined execution and by leveraging our deep understanding of what our customers want and need from the 10 years of engaging with them every day.

Our accomplishments are also a result of building a management team over the past 10 years that is not only committed to our community but is world-class at running a high-growth business from product design and innovation, supply chain, marketing or any other aspect of our company. We are a team that delivers extraordinary results year after year that's driven by a clear mission to celebrate, empower and serve those who serve others. And it is through this mission that we will continue to enrich the lives of the healthcare professionals for years to come. I truly believe we are just getting started.

What we are creating is more than just product. It's a movement within the healthcare profession. We have a long runway of growth ahead, and we're so grateful to be afforded the opportunity to inspire and create the world our awesome humans want to live in. With that, I will hand it over to Trina.

Trina Spear -- Co-Chief Executive Officer

 Thanks, Heather. In 2021, we delivered $420 million in net revenue, over 60% adjusted revenue growth, over 70% gross margin, $105 million in adjusted EBITDA, a 25% adjusted EBITDA margin and $64 million of positive free cash flow, all at the same time, which speaks volumes about the strength of our business and our maniacal focus on operational excellence. We're able to consistently perform at such a high level because we flipped the entire paradigm of this industry on its head, from our products to the experience, to our community, and we have gained even greater momentum in 2021 as we further disrupted the industry. Let's start with product.

We brought performance fabrics to scrubs to create an unmatched combination of comfort, durability, function and style with technical attributes like four-way stretch, moisture wicking and breathability. This did not exist before FIGS. We changed the game and set the new standard with over 80% of our business in 13 core styles. Innovating on the core remains paramount to our long-term success.

That's why in 2021, we've invested heavily into building out our product innovation and design capabilities to ensure we have the best team in place to continue to push boundaries and shape the future. One of the many ways we're growing our scrubs business is by creating franchises around our 13 core styles. In 2021, we introduced the high-waisted Zamora and Yola pants for women as well as the Tansen slim pants for men. These variations on our fan favorites provided new opportunities for us to meet unique needs and preferences of our growing customer base.

And our customers, both new and repeat, love these iterations on our core. For example, the high-waisted version made up about 40% of our Zamora sales in the second half of the year. As you've heard us say before, healthcare professionals wear more than just the scrubs top and pants, so we have built products that go far beyond scrubs, driving innovation across our layering system, from base layer to outer layer, to find new ways to address the evolving needs and changing environments of our healthcare community. This holistic approach, coupled with our almost weekly product drops, has completely upended how healthcare professionals engage with their uniform.

Completely different from the typical scrubs company, we launched over 100 new styles across all categories in 2021, with strategically shallow buys to create hype and drive traffic. Our healthcare professionals stay up until midnight to see our latest release and buy it before it sells out, a behavior that was never associated with scrubwear before FIGS. This merchandising strategy drives higher AOV and revenue per customer as our healthcare professionals come back over and over to replenish, try new styles and layer on our lifestyle offerings. This dynamic is impossible to replicate.

Our healthcare professionals' work is physical. Their shifts are long, and their time is valuable. That's why we transformed the shopping experience, eliminating the friction and inconvenience of the outdated distribution model by going direct to them online. And as e-commerce continues to accelerate and demand shifts online, we are in the best position to capitalize on this momentum as the largest direct-to-consumer company in our space.

There is no one else in our industry who has a digital scale, speed and data to understand the needs of the healthcare professional. And that's because the vast majority operate through a wholesale model where they don't have any connection to the end customer. As for the few D2C players, our next largest competitor is a small fraction of our size. As a result, our data network is much more comprehensive than our competitors and gives us the opportunity to drive greater loyalty through more precise targeting, personalization and engagement.

As we grow in scale, our data set gets bigger and smarter. For example, in the fourth quarter, we made updates to our sites to future more tailored and personalized content. Using the immense amount of data we get from our customers, we were able to segment the site so that Kelly, a nurse in Houston, saw a completely different imagery, content and product offerings than Jacob, an oncology resident in Boston. As a result, our conversion in the fourth quarter on these personalized experiences was almost double its previous rate.

Now, let's discuss operational excellence. I want to make it clear that our ability to consistently deliver results did not happen by accident. It's a function of our incredible focus and discipline and the strength of our team. Our chief operating officer, Devon Duff Gago, who has been with our company for six years, together with her team has executed in the most unprecedented environment to rapidly scale our business to more than four times its size in just the past two years.

Our unique business model has several key differentiators that enabled us to better withstand the macro supply chain challenges. Nearly 90% of our product is made from a single fabrication, which provides our manufacturing partners with high volumes of consistent capacity. Additionally, almost half of our revenues are generated by 13 core styles in core colors. The fact that half of our revenues are seasonless, enables us to produce large volumes further in advance and hold greater quantities in our warehouse with almost no inventory risk compared to traditional apparel companies.

These differentiators are incredibly important because as transit times fluctuate, freight rates rise and labor shortages persist, our business model is able to endure these near-term pressures and still deliver best-in-class annual gross margins above 70%. And most importantly, we get the product to our healthcare professionals that they need to do their jobs. All of this, our amazing products, our superior experience, our operational execution has enabled us to build a deeply loyal and passionate community. We changed the way healthcare professionals engage, shop and feel about their uniforms, and this is reflected in our loyalty metrics.

For new customers, about half of them come back and buy from us a second time within one year. Customers who are active in their second year are with us for life as we see over 95% retention from year two to year three. And as they come back to us again and again to replenish their scrubs, their brand affinity grows, as does their overall spend and LTV. Our business is unique.

It's nondiscretionary and replenishment-driven, meaning greater predictability and consistency. This is a critical advantage for us compared to other consumer brands as almost 75% of our revenue is retained in the next year, providing a solid base for us to build upon as we grow. And as we acquire more customers and turn them into repeat purchasers, this dynamic compounds. As I reflect on our outstanding 2021 and everything, we've accomplished over the past 10 years, I am increasingly confident in our road map and our ability to transform and grow the $12 billion U.S.

market, a figure backed by research and survey work from a top independent consulting firm that we engaged as part of our IPO. The healthcare industry has incredibly compelling fundamentals. Our industry is a mandated nondiscretionary, recession-resistant, has strong replenishment dynamics as healthcare professionals need to wear their uniform every day. And even with the burden our community has endured over the past two years, U.S.

healthcare jobs are expected to be the fastest-growing job segment over the next decade, adding nearly 2.6 million new jobs. Additionally, we ended the year with a record 1.9 million active customers, which represents less than 10% of the over 20 million healthcare professionals in the United States and less than 2% of the over 115 million healthcare professionals around the world. So there's a significant growth opportunity for years to come as we continue to add more awesome humans to our community. We've barely gotten started.

Let's break down the $12 billion number a bit more from a spend perspective. In the study, the $12 billion is comprised of scrubwear, lab coats, medical shoes, scrub caps and compression socks. It's estimated that healthcare professionals spend approximately $570 annually across these categories, of which about $330 is spent on scrubwear. Our data shows that the average customer that comes back to FIGS spends almost 10% more than that $330 figure in their first year, and they continue to spend more with us over time.

And our top decile spent almost two and a half times that $330 just on their scrubs. So as we continue to turn first-time customers into brand evangelists, our premium pricing, our highly effective merchandising model and our commitment to innovation allows us to drive this number even higher. As it relates to the categories outside of scrubs, lab coats, medical shoes, scrub caps and compression socks, what we offer is, just like with scrubs, totally revolutionizing what these categories traditionally represent, and we are still significantly underpenetrated in them today. We are changing that because these products, like scrubs, have been overlooked, undervalued and created without the end customer in mind.

And no one is better positioned than FIGS to do that. And not only are we innovating in these select categories, we're also completely changing the game on everything outside of this $12 billion industry. The majority of our lifestyle products from underscrubs to outerwear never existed for healthcare professionals before FIGS. And they are clearly resonating with our community as our lifestyle grew to almost 17% of revenue in Q4.

We are redefining the very definition of a uniform while expanding and growing the market in the process. Let me be crystal clear. We believe FIGS is in a very strong position to continue to take market share. But more importantly, we are creating the market as we innovate on our products, improve the experience and provide our community with what they want and what they need, and in many cases, what they didn't know they wanted or needed.

2021 was an incredible year for us. In our first year as a public company, we delivered on what we set out to accomplish and exceeded all of our expectations, and we are excited to build on that success in 2022. We will continue to invest behind what we do best. We are doubling down on innovation, growing brand awareness, adding new awesome humans to our base, deepening our relationships within our community to drive further loyalty and expanding on our nascent international and lifestyle businesses.

Let's dive deep into international for a moment. We tripled our international business in 2021, affirming that healthcare professionals around the world are similarly underserved and want a better product and a better experience. We also proved that we could expand and grow beyond the U.S. with the same strong fundamentals we see domestically, maintaining our robust AOV, our retention and our gross profit profile in Canada, Australia and the U.K.

In 2022, we are going to continue to build on this international expansion. We plan to enter new markets this year, and we are going to use the same disciplined approach to market selection, utilizing our site traffic and strategic understanding of market dynamics to determine where we launch next. With international comprising only 7% of our business in 2021, we have an enormous runway of growth ahead of us and we cannot wait to get even more awesome humans into FIGS. In closing, we have never been more confident in our ability to reach annual net revenue of $1 billion by 2025.

We have just scratched the surface in terms of what we are capable of, and we'll continue to grow in scale by remaining focused on our purpose for existing: to serve our healthcare community. With that, I will hand the call over to our CFO, Daniella Turenshine, who joined FIGS in 2018. Daniella knows our company inside and out. And in the year, she's been at FIGS, Daniella has been as responsible as anyone for the unique combination of revenue growth and profitability that we've achieved.

In terms of what FIGS needs in a CFO, there's simply no one better positioned than Daniella. Her deep knowledge and passion for the brand, combined with our deeply analytical and data-driven approach is what helped FIGS go from less than $55 million in revenue when she joined to over $400 million today. We are so excited to have her as our CFO, and I have no doubt she will continue to lead us forward in delivering on our long-term targets and growth ambitions. Daniella?

Daniella Turenshine -- Chief Financial Officer

Thank you, Trina, and good afternoon, everyone. I want to first say thank you to Heather, Trina and the board for the opportunity to serve as FIGS chief financial officer. It has been an honor to help grow and scale this inspirational brand over the last several years, and I could not be more excited to continue to serve our community of awesome humans in my new role. FIGS' full year financial results exceeded our expectations, driven by continued robust demand for the brand across both new and repeat customers, the strength of our lifestyle expansion across categories and strong holiday sales.

We delivered an outstanding Black Friday/Cyber Monday week that grew 54% year over year, on top of an incredibly strong 2020 season, while concurrently being less promotional. Looking at Q4, we successfully executed against our pricing strategy, selling more product at full price with almost no impact to our demand. This strategy resulted in almost 300 basis points of discount rate improvement year over year and was a big contributor to our exceptional growth and profitability for the quarter. And as a result of the strong demand that we saw, our net revenues for the quarter exceeded our previous guidance by $10 million.

Now, let's dive into the financial results. Net revenues for Q4 were up 42.7% to $128.7 million compared to Q4 last year. Our performance was driven primarily by strong order growth from both new and existing customers. We acquired more new customers in Q4 than ever before, growing our active customer base to almost $1.9 million.

And despite the exceptional growth in new customers, almost 70% of our revenues in the quarter were still from repeat customers. Net revenues also benefited from a 15% increase in average order value to $113 in the quarter compared to $98 in Q4 2020. We drove record lifestyle adoption, partly driven by expanding the breadth of our outerwear offerings, including our new sweater knits and puffer jackets. This strategy helped drive higher AOV in the quarter through higher price points and increased units per transaction as customers wanted to complete the full layering system.

Perhaps more importantly, it provides a clear indicator of the greater demand for our brand beyond our core scrubwear and our ability to further grow our existing categories by building depth within our collections. Finally, in addition to the improvement in AOV for both the quarter and full year, net revenues per active customer increased to $224 in Q4, up $22 or over 11% year over year. This is an important metric that we are focused on because it shows us how much our customers are spending with us not just in one transaction, but over the course of an entire year. And as that number continues to grow, it means our customers are more engaged and spending more with us over time.

Gross margin for Q4 decreased 110 basis points to 69.9% compared to Q4 2020. This change was primarily due to higher use of airfreight as well as higher freight rates, offset in part by better product costing. Gross margin was considerably better than expected, primarily due to our strategic decision to reduce discounts during the quarter. As a result, we were able to use this pricing power to help offset our elevated airfreight spend.

Additionally, while airfreight expenditures were still elevated compared to the prior year, our actual spend came in much lower than expected, approximately $6 million in the quarter versus our previous expectation of $8 million to $10 million. Moving to operating expenses. Selling expense for Q4 was $25.6 million, representing 19.9% of net revenues compared to 20.2% in Q4 2020. We experienced increases in shipping rates from our carriers and higher fulfillment expenses in the quarter.

However, we were able to offset these headwinds, primarily due to the solid increase that we drove in AOV. Marketing expense for Q4 was $16.6 million, representing 12.9% of net revenues compared to 14.5% in Q4 2020. This decrease was primarily related to efficiency of performance marketing spend and lower-than-planned brand spend. On the digital marketing side, we continue to see efficiency and return on advertising spend as the proportion of net revenues driven by repeat customers grows over time.

As we think about building our brands for the long term, we will continue to invest these gains back into growing brand awareness through top of the funnel marketing initiatives. General and administrative expense for Q4 was $31.3 million, representing 24.3% of net revenues compared to 22.2% in Q4 2020. This increase was primarily driven by noncash, stock-based compensation, the incremental capabilities we have built over the past year in key areas such as product innovation and merchandising and increased costs from being a public company. As we look ahead into 2022 and beyond, we will look to balance investments into key capabilities across product innovation, digital experience and talent while scaling our operating expenses to continue to drive profitable, sustainable long-term growth.

Taking this to the bottom line, our net income was $12.6 million or $0.06 in diluted EPS for the quarter. Adjusted net income was $18.6 million. And diluted EPS, as adjusted, was $0.09 in Q4 compared to $0.08 in Q4 2020. The increase in diluted EPS as adjusted was primarily driven by the increase in adjusted net income year over year as our operations grew and we scaled efficiently, partly offset by increased dilution.

Finally, our adjusted EBITDA for Q4 was $31.9 million, and adjusted EBITDA margin was 24.8% for Q4 compared to 23.7% in Q4 2020. This change was primarily driven by efficiencies in marketing and selling as we have scaled, offset by lower gross margin due to freight and investments in talent. And most importantly, we are incredibly proud of our huge milestone of delivering over $105 million of adjusted EBITDA for the full year. The discipline and execution required to deliver exceptional top line growth paired with profitability is fundamental to our business model.

We continue to produce substantial cash flows while ensuring we deliver against our long-term growth ambitions. Moving on to the balance sheet. Our cash position at quarter end was strong with cash and cash equivalents of $195.4 million. For the full year, we generated free cash flow of $63.7 million, up from $19.5 million in 2020.

The 227% increase in free cash flow year over year demonstrates our ability to significantly scale our net cash from operating activities through high top line growth, coupled with best-in-class execution. Moving on to our outlook. Following an exceptional financial performance in 2021, we are incredibly excited to continue to deliver strong top line growth and are confident in our strategic road map for 2022 and the years ahead. Based on our current visibility, we expect 2022 net revenues to be approximately $550 million to $560 million, representing growth of 31% to 33% compared to 2021.

From a quarterly flow perspective, we expect our growth rates to be relatively consistent throughout the quarters. From a gross margin perspective, we are monitoring the dynamic macro volatility being experienced by every company. While we continue to navigate these challenges effectively, we are not immune to them. As a result, we expect 2022 full year gross margins to be down slightly year over year.

This is a result of higher freight rates coupled with the use of airfreight to combat increasingly unpredictable transit times on the water. The pressure from elevated freight-in cost in the near term is more than offsetting the continued benefits we are seeing in our business from lower discounts and improvements in product costing. We feel confident that we will continue to navigate these short-term pressures with best-in-class execution and over the long run, be able to realize efficiencies and margin as we scale. As a high-growth company, we will continue to make the necessary investments to support our strategic road map and long-term expectations.

We remain confident in our ability to deliver a 2022 full year adjusted EBITDA margin rate in line with our long-term target of 20-plus percent, which is truly amazing for a company of our size and scale with our growth expectations. When looking at the factors that drive our adjusted EBITDA expectations for 2022, first, as I mentioned above, we do expect some pressure from gross margin. Within operating expenses, selling is expected to delever slightly from increasing shipping rates due to COVID-19. And marketing and G&A is expected to stay relatively consistent as a percentage of net revenues compared to 2021 as we continue to grow our brands and make critical investments in technology, systems and innovation to support our long-term growth.

For the first half of 2022, we will also be comping a period with no public company costs, which have a material impact to our G&A. Our business model, coupled with a best-in-class team have enabled us to deliver a unique financial profile, where we can continue to invest in our business to support our high-growth expectations while still delivering 20-plus percent adjusted EBITDA margin. As we say here at FIGS, if it was easy, everyone would do it. It is not easy to deliver this level of performance, and we will continue to push ourselves to do so.

We see tremendous opportunity ahead of us on top of our strong results today. We are underpenetrated in the U.S. Our lifestyle business is just getting started, and our international opportunity is essentially untapped. It's been an incredible journey so far, and I look forward to building on our momentum into 2022 and beyond.

With that, I will turn it over to the operator to kick off our Q&A session first with our analyst community. After addressing their questions, we will then answer a handful of questions received from our shareholders through the Say platform. Operator?

Questions & Answers:

Operator

[Operator Instructions] Our first question is from the line of Adrienne Yih with Barclays. Please go ahead.

Adrienne Yih -- Barclays Capital -- Analyst

Good afternoon. Good job navigating what is just an extraordinarily difficult backdrop. A question for each of you. Heather, can you talk about the attachment rate of noncore product via product extensions to the core purchases that you've been seeing lately? For Trina, can you talk about February month-to-date trends? And you gave -- Daniella gave color on kind of an equally measured growth rate over the four quarters, but just how are you thinking about where you impacted by stimulus and how you're thinking about that? And then for Daniella, can you talk about inventory purchases? I know you're not doing as much air but give us a little bit more help in Q1 and Q2, the impact of kind of ongoing supply chain over $100 oil, those types of new developments since we last heard from you on January 10.

And what have you embedded into both the demand forecast and the cost forecast? Thank you so much.

Trina Spear -- Co-Chief Executive Officer

Thank you, Adrienne. It's great to hear your voice. OK. So from the first question around our lifestyle offering, it's been incredibly amazing to see how our healthcare professionals are really utilizing the complete layering system, right? And our lifestyle business was 17% of our business in Q4.

And if you look at the attach rate, our customers, 30% of our customers own a product outside of scrubs, own a lifestyle product, which is really incredible to see. In terms of our February trends, I can't share too much, but we really aren't seeing any drop-off due to what's going on in the world and really feel strongly about our year going forward. Daniella gave you some commentary around our outlook. But we're really excited about the momentum we're seeing in our business.

And 2022 is going to be another record year for us. And as it relates to inventory, I'll pass it over to Daniella.

Daniella Turenshine -- Chief Financial Officer

Thank you, Trina. As it relates to supply chain, we are navigating some very fluid and evolving dynamics as it relates to inbound. As we said in our prepared remarks, we do expect it to impact us in 2022. So we're seeing rates both for ocean and air are going to be higher.

And that increasing transit times and the lack of reliability that we're seeing in the ocean freight market is resulting in the need for continued airfreight. We're able to offset some of this near-term pressure through driving more sales at full price, but also continued product costing benefits as we scale. I think most importantly, we believe we can continue to deliver on our best-in-class gross margins of 70-plus percent despite these near-term challenges. And we feel very confident in our ability to achieve the revenue guidance that we provided.

Adrienne Yih -- Barclays Capital -- Analyst

Great. Thank you very much and best of luck.

Operator

Thank you, Ms. Yih. Our next question comes from the line of John Kernan with Cowen. Please go ahead.

John Kernan -- Cowen and Company -- Analyst

Excellent. Thanks for taking my question. Good afternoon, Trina, Heather and Daniella. Congrats on a real nice quarter right out of the gate.

Could you just talk to -- just the revenue guidance is obviously very robust? I'm just wondering if you can provide a little bit more detail on the leverage on the operating expense line. I understand the EBITDA margin outlook for the year, but just curious if you could give us a little bit more detail given the level of top line growth, how we should think about G&A and opex in general and the dollar growth there? Thank you.

Daniella Turenshine -- Chief Financial Officer

John, as we mentioned, we are expecting the G&A line to remain relatively consistent as a percent of sales year over year. And as we said in our guidance, our adjusted EBITDA margin floor is 20%. And I think it's really amazing that our floor is a place where other companies in our space have probably never contemplated reaching, especially in the near term. And so, as you think about 2022, you can expect us to do what we've always done, which is effectively deploy capital in strategic ways and smart investments to really deliver on our long-term growth plans.

So you're going to see us continue to do that across marketing, product innovation, within G&A and technology and talent to ensure that we're continuing to build a strong foundation for us to grow. As you've always seen, we've invested in our business with great returns, and we're going to continue to do so. And I think it's really rare, right? There's a few companies that can do this to invest meaningfully in their business while simultaneously sustaining a best-in-class adjusted EBITDA margin profile and growing at 30%. The one thing I would highlight is in G&A, we had a significant amount of stock-based compensation that was nonordinary associated with our IPO.

So I wouldn't expect that to reoccur in 2022, and it was about $56 million.

John Kernan -- Cowen and Company -- Analyst

Got it. That's very helpful. Thanks. And maybe a follow-up for either Heather or Trina, you both sounded extremely confident in the addressable market.

And particularly, it sounds like diversification beyond scrubs in the core. I think you talked about half of revenues are core styles and colors. What's the margin profile look like in lifestyle, which I think you mentioned is now 17% of revenue? And just can you reiterate your confidence just in what you're seeing in terms of addressable market, particularly in the core scrubs business? Thank you.

Trina Spear -- Co-Chief Executive Officer

Sure. Thanks, John. And I think what we've seen is that our -- all of our metrics are pointing to sustainable runway of growth and the ability to penetrate -- well, not only penetrate the $12 billion market, but actually capture all this additional white space well beyond that number. So as I mentioned on the call, our customers are spending about 10% higher than the average customer in the industry, 10% above that $330 number on the scrubwear, and our top decile spending up to two and a half times as much on just their scrubs.

And then, in terms of the lifestyle, to your point, that's a massive opportunity that we feel like we barely scratched the surface, and it's already 17% of our sales. And so, from our underscrubs, our underlayers, our outerwear, our sweater knits, our puffers, some of which have been brand-new to what we're doing in Q4, to our compression socks, to our scrub caps to all of these different products, we really are seeing the layering system resonating with our community in a major way. And so, as much as we're selling into TAM, we're also creating TAM. We like to say here, lady companies sell into TAM and innovative companies create it, and that's what we're really looking to do, create the market every day.

John Kernan -- Cowen and Company -- Analyst

Got it. Thank you. Best of luck.

Operator

Thank you, Mr. Kernan. Our next question comes from the line of Bob Drbul with Guggenheim. Please go ahead.

Bob Drbul -- Guggenheim Securities -- Analyst

Good evening. A couple of questions for me. First, on active customers, when you think about the growth that you've had, can you just give us an idea what your assumption in '22? And then repeat customer growth went from 62% to 68% of sales. Can you just talk about the drivers there and sort of the initiatives and where you think you can take that number? Thanks.

Daniella Turenshine -- Chief Financial Officer

Thanks, Bob. In terms of active customers, so we're really excited to continue to see this grow, and we plan to expand it even further in 2022. We can't get into the specifics, but in 2022, we are planning to acquire more new customers than we did in 2021. On the repeat customer side, really proud of our ability to expand that from 62% to 68% in 2021.

And we're going to continue to drive that with the same model that we've been doing, right, really focusing on engaging with our community in thoughtful and meaningful ways, on exciting product innovation, and also really building out our lifestyle and continuing to drive really higher attach rates there.

Bob Drbul -- Guggenheim Securities -- Analyst

Great. And just a follow-up question. On the replenishment side, are you seeing any change in behavior on your customers' timeline, states of the replenishment purchases?

Daniella Turenshine -- Chief Financial Officer

So looking at our cohort dynamics, we've seen it remain really steady over time. And I think you can see in our net revenues per active customer, that's a metric that we're really focused on because it shows us not just our customers how often they're coming back or how much they're spending, but really how much they spend over the course of an entire year. So we're excited to see that increase $22 to $224, and we're continuing to drive the same strategies to increase it further.

Bob Drbul -- Guggenheim Securities -- Analyst

Thank you.

Operator

Thank you, Mr. Drbul. Our next question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.

Brian Nagel -- Oppenheimer and Company

Hi. Good afternoon. Nice quarter. Congratulations.

Heather Hasson -- Co-Chief Executive Officer

Thanks, Brian

Brian Nagel -- Oppenheimer and Company

So questions I have, just with regards to -- and I know we talked about supply chain, these ongoing pressures. But as you look at -- and you also mentioned some of the offsets you have here, so to say, maintain gross margins despite these pressures. But as you look at these pressures and assuming that they may continue for some time, and especially with new challenges out there, is there a consideration in lifting prices on the products so as to offset more permanently these higher supply chain costs?

Heather Hasson -- Co-Chief Executive Officer

You know, as of right now, we don't see any need to increase our prices. You know, our goal, as you know, is to really ensure our prices are affordable and accessible for every customer, every healthcare professional. And we do feel like we're offering a great value for the product that we make. And our margins have been relatively intact, right? There's really no need right now, and we don't have any plans to increase our prices due to the dynamics at play.

But when we have increased our price in the past, we really haven't seen a drop off in the demand, and so we do have -- we believe our brand strength enables us to do that if we see that we need to. So it's kind of how we're thinking about some of the dynamics across the industry.

Brian Nagel -- Oppenheimer and Company

That's perfect. Then my follow-up question, and I think we've discussed this in the past against the backdrop of the supply chain disruptions. Are the product -- are you pushing ahead with your normally planned product launches for '22?

Heather Hasson -- Co-Chief Executive Officer

Yes. I mean I think one of the amazing things about how we've navigated the supply chain is that we get our products, we get them into our warehouse, and we get them to our customers. And you've seen that over the past two years. I don't know another company that's navigated the supply chain challenge better than FIGS.

And you see that in the numbers, and it's a testament to this incredible team that we have here. So we are -- every now and then, things shift a bit, right, seven days here or a week there, and we're able to move our calendar because we are a direct-to-consumer company. But that's one of the big benefits we have. We're not waiting on a PO from some retailer.

And so, we're able to move our calendar around, launch an amazing campaign. Every time we launch, over 100 new styles, new products last year. So we're going to continue to surprise, delight, engage our community in the most unexpected and incredible way, but we do have flexibility around that because of the business model that we are in.

Brian Nagel -- Oppenheimer and Company

Thank you. Congrats again.

Operator

Thank you, Mr. Nagel. The next question comes from the line of Michael Binetti with Credit Suisse. Please go ahead.

Michael Binetti -- Credit Suisse -- Analyst

Hey, everyone. Thanks for taking our questions here. Congrats on a great quarter. I guess, just a quick one on the model.

Could you -- is there any way you can help us with any numerical to size the benefit you saw in the gross margin that came from the reduced promotions and the product sourcing efficiencies that you pointed to. Just trying to think through the ability to hold on to that next year. How much of that is in your plan for next year? Obviously, not knowing where the industry is going to go, but just what you guys are thinking about. And then, I guess now with the benefit of two full years of financials as a scaled-up company.

EBITDA has been pretty consistently in the mid-20s. If you can walk us back a little bit in time here, I think one metric that we've had to watch carefully is the ability to keep the gross margins above 70% has moved beyond the really high-margin core of the business in scrubs. You've answered some questions today about your confidence there. So it sounds pretty good.

So if the grocers are going to stay in that range above 70, what in your mind are the inputs or investments that we should think about in a scenario that would take you into the lower 20s on EBITDA? And I guess the same question on the upside, there's industry pressures on the margins right now. But what could go better than planned that could help you put up another year in the mid-20s?

Trina Spear -- Co-Chief Executive Officer

Thank you, Mike. That was a long question. So looking at the gross margin, we're not going to get into exactly the specifics, but there were several things that really drove it to be higher than anticipated. The first of which, as you called out, is strategically selling more product at full price.

And that was a big driver of the success that we saw, and it's something that we're continuing in 2022 and plan to see the benefit going on through the year. The second was improvements in our product costing, especially across our core scrubwear that helped offset. And then, finally, airfreight just being better than expected as we negotiated better rates and we're conservative in forecasting. So those are the main puts and takes, and a lot of those we expect to see continue in the year ahead.

Just want to reiterate, though, that this is a fluid situation that's highly dynamic. So we'll be sure to keep everyone up to date as things change and continue throughout the year. Going into your second question, so yes, as we mentioned, gross margin, we're seeing a lot of headwinds still feel really confident in our ability to be above 70-plus percent. As that flows through to adjusted EBITDA, we're really focused on continuing to make investments, particularly in the operating expenses so that we can ensure that we're really building this company the right way and continuing to build the infrastructure to really support our long-term growth.

So I think we walked through each of the segments in the call, but we are really going to just do the same things that you've seen from us before, which is invest back in the business at really amazing returns.

Michael Binetti -- Credit Suisse -- Analyst

And is there -- if I could sneak one more in. Is there any evidence on the lifestyle categories you build it out and you look at it a little more closely? How much of that is going to healthcare workers versus non-healthcare workers?

Heather Hasson -- Co-Chief Executive Officer

The vast majority, 98% plus, is going to healthcare professionals that are really -- it's not just, oh, it's a fleet. This is an on-shift fleet that's been made to be worn indoors because hospitals are freezing that has a pocket for stethoscope as you're running around on your shift for 12 hours, 16 hours getting to your patients. All of our products, and that's just one example, right, all of our products are made for healthcare professionals to be worn to work, at work, from work, on-shift, off-shift, head to toe. We changed the game, right? We changed the game, bringing a real layering system to every healthcare professional so they can look good, feel good and perform at their best.

And that's what it's all about. So we're going to continue to do that and build out these categories even further.

Michael Binetti -- Credit Suisse -- Analyst

Great. Thanks a lot, guys. Congrats again.

Operator

Thank you, Mr. Binetti. The next question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

Alice Xiao -- Bank of America Merrill Lynch -- Analyst

Hi. This is Alice Xiao on for Lorraine.  Thanks for taking our question. You mentioned entering new international markets this year. Can you elaborate on that opportunity a little bit, maybe which geographies you're targeting? Will there be elevated marketing or region-specific launches or any investments in distribution capabilities?

Heather Hasson -- Co-Chief Executive Officer

Thank you, Alice, and great to connect. So I think, as we said, international is a massive opportunity, right? Only 7% of our business in 2021 is from the three countries that we're in today: Canada, U.K., Australia. And so, we're going to be launching a number of new markets this year. I can't say exactly which ones yet, but we're excited.

And what we've seen in the countries that we're already in is that the financial profile is very much in line with our U.S. business. And so, we look forward to seeing that continue in new markets. That being said, it's kind of like what we've done in the U.S., right, where we gain efficiency as we evolve, and our markets mature and then we're able to put those gains into newer markets.

So similarly, in the new markets we're entering, we'll be investing more, investing more behind obviously people and marketing and building out those businesses, with the goal of reaching tipping points within those markets so we can continue to evolve and grow into other markets. So we couldn't be more excited. We are building a long-term global brand for the next 100 years. And the truth is like whether a healthcare professional in Kentucky or in Munich or in Istanbul or in Mexico City, you have a pretty similarly horrible experience prior to FIGS.

So they want a better product, they want a better experience and we are here to give it to them.

Alice Xiao -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you, Ms. Hutchinson. The next question comes from the line of Matthew Egger with Piper Sandler. Please go ahead.

Matthew Egger -- Piper Sandler -- Analyst

Yes. Just one quick one for me. Given that you all are a digital business, can you expand upon what you all have done or what you are doing to mitigate your outbound shipping costs?

Heather Hasson -- Co-Chief Executive Officer

Yes. Sorry, go ahead, Daniella.

Daniella Turenshine -- Chief Financial Officer

Definitely. And so, what we've seen over the past year, so in 2021, we've seen higher rates due to COVID-19. And the way that we've mitigated it to date, is by continuing to drive an increase in average order value. And that's really helped to offset some of the pressures that we're seeing on the outbound supply chain.

And we're going to continue to look to do that as we comp 2021.

Operator

Thank you, Mr. Egger. The next question comes from the line of Brooke Roach with Goldman Sachs. Please go ahead.

Brooke Roach -- Goldman Sachs -- Analyst

Good afternoon and thank you so much for taking my question. Trina, Heather, I'd just love to hear a little bit more about your efforts to take that first time FIGS customer and recapture them to turn them into a long-term brand loyalist. What efforts are you implementing to improve that recapture rate to well above 50%?

Trina Spear -- Co-Chief Executive Officer

Sure. I mean what we've seen over the past few years is that our revenue per customer, which we are really focusing the investment community on, has increased by over $50 over the past two and a half years. So I think what we've seen is that once our customers buy from us, they come back, they come back over and over and over again to replenish their uniforms. And a lot of that is just because the product is so amazing, and it speaks for itself.

And once you try FIGS, there's no reason to buy anything else. And so, we don't have like a massive amount of retention marketing that even needs to happen. That being said, we do reengage and engage our community through new product drops. We have product drops weekly here at FIGS.

We're engaging across our social channels in real life and events and through all the work that our brand team and our teams across the company are doing. But really, when you have -- when you build a great product that people love, come back for it. And that's what we've done here at FIGS.

Brooke Roach -- Goldman Sachs -- Analyst

Thank you. And if I could just ask a follow-up on that. AOV has been a great contributor of growth as you built out that lifestyle business this year. Do you anticipate the growth momentum in AOV will continue at the same double-digit pace of contribution into 2022 that you saw in 2021?

Daniella Turenshine -- Chief Financial Officer

We're incredibly happy with our ability to drive AOV over $100. However, just as Trina said, I really encourage you to look at net revenue per active customer because that shows us what our customers are spending over the course of an entire year, not just in one transaction. And so, our ability to really grow this key metric is a better reflection of how engaged our customers are and our ability to get them to spend more with us over time. Going back to AOV, though, we've been executing on our strategies that have drove it higher and we're going to continue to do so.

So the first of which is the continued adoption of our layering system, as we've discussed. So driving higher average unit retails through higher price points, but also increasing the units per transaction per customer as they really want to shop the full look. We're adding more personalization and features to our e-commerce experience, and we're driving customers to purchase more through smart bundling opportunities like kits. And finally, we're going to plan to drive more sales at full price, which will help further increase AOV.

Brooke Roach -- Goldman Sachs -- Analyst

Thank you so much. I'll pass it on.

Operator

Thank you, Ms. Roach. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please go ahead.

Dana Telsey -- Telsey Advisory Group -- Analyst

Hi guys. Nice to see the progress, and congratulations, Daniella. You've done a lot of new product initiatives this year in terms of the holiday gift shop, the kits, how are those taking hold in driving either repeat purchases or what new innovations should we look for this year to continue to drive AOV? And lastly, how are you planning the discounts going forward? What was typically the time line of discounts and the cadence as you went through the year? And the reduced discounts in the fourth quarter, do you see that occurring going forward? Thank you.

Heather Hasson -- Co-Chief Executive Officer

Thanks, Dana. Yes. I mean I think our No. 1 job here at FIGS is to innovate on the product side.

And what we do is we create functional high-quality products to outfit our healthcare professionals from head to toe. And so, we did that in 2021 in spades, right, 100 new styles. And I think our product innovation velocity, I think it's unlike many other companies, and we're continuing to build on that in 2022. And you saw that, right? You saw it with lifestyle, how we really build that out.

We're going to continue to do so, building out these categories, right, within outerwear, within our underscrubs, within our compression sock business. These are all businesses that will be incredibly large over time. But don't forget -- I wouldn't sleep on the scrubs business, right? Over 80% of our business is core scrubs. So building out these franchises is also a really important part of what we're doing with our high-waisted styles, with our yoga waist band styles, with our double draw cords, all of these different iterations of the styles that people know and love is a big part of what we're doing going forward.

Men's. Men's is continuing to be a massive opportunity. We are underpenetrated on that front, and we are continuing to innovate on that front. And then, inclusivity, right, on the sizing, we are going to continue to bring more sizes, cuts, different fit, to really be able to serve a broader range of our amazing healthcare professionals around the world.

And so, we have a lot to do. We are excited. We wake up every new morning feeling like we're the luckiest people in the world that we are able to do this and create the most amazing products for the most amazing people, and that's what we're going to do. And as it relates to the discount, Daniella?

Daniella Turenshine -- Chief Financial Officer

Yes, I'll take the discount question. So a couple of items related to our discounts in Q4 and how we're thinking about them going forward. So the first of which is more Q4 specific, we really changed our Black Friday, Cyber Monday strategy to have more dynamic pricing and give us better control over the inventory that we sold, and that resulted in a lower discount. And so, we're probably not going to see that benefit into the next quarter.

However, we also drove lower discount usage in non-promotional times, and we're expecting to continue that strategy and continue to drive that in 2022 and see those benefits.

Dana Telsey -- Telsey Advisory Group -- Analyst

Thank you.

Operator

Thank you, Ms. Telsey. There are no additional questions waiting at this time. So I will pass the conference over to co-CEO, Trina Spear.

Trina Spear -- Co-Chief Executive Officer

Thank you. So before ending our call today, we would like to take some time to answer a few of the most upvoted questions from our shareholders through the Say platform. We received quite a few questions around me and Heather selling shares. So we're going to start there.

First off, no one is more committed to this company than Heather and me. After having built the company for almost a decade and after not selling any shares in the IPO, we sold a small percentage of our shares in our September follow-on. Heather sold about 13% of her holdings, and I sold 5%. Virtually every founder sells some shares after their company goes public, so this is very standard.

And we do remain two of the biggest holders of FIGS stock with a tremendous amount of stake -- at stake, which is just as it should be. And we just want to say how committed we are to this business. We are so confident and excited about the future, and we look forward to getting on more calls and showing that we will continue to deliver. Next.

We got a question from John H. around the stock price movement, and he asked a really great question. For potential investors out there, why choose FIGS? So we've seen that, too. And in the short run, and I'm sure you've heard this, the stock market is a voting machine.

But in the long run, it's a weighing machine. And in the whole stock market, I'm sure everyone knows is extremely volatile right now, and it's really due to macro factors that have nothing to do with us. And in our view, that's creating the stock price movements that don't reflect at all the fundamentals of our business. So let's talk about why you should choose FIGS.

First, in terms of our fundamentals, it's extremely rare to find any company with our financial profile. This rare combination of both revenue growth and adjusted EBITDA and doing that all at the same time, coupled with our free cash flow is truly unique. And it's one of the reasons -- there's a few reasons why we've been able to create this unique financial profile. We are in an industry that is recession resistant.

It's nondiscretionary. Healthcare professionals must wear their uniform to go to work every day. They need these products to go to work and do their jobs, and we help them look good, feel good and perform at their best. Our business is replenishment-driven, with high repeat purchase rates.

Almost 70% of our business is repeat customers at this point. We create the most innovative products and have a diehard community that is coming back over and over and over again for them every day. Healthcare, as a segment, as a job segment, is expected to be the fastest-growing job segment over the next decade. The market is massive.

It's $12 billion in the U.S. It's $79 billion. We feel that we're creating market share every single day beyond those numbers. Creating TAM every day, that's what we do at FIGS.

We have huge growth opportunities in front of us across all parts of our business. and our operational execution is best-in-class. We've delivered and will continue to deliver outstanding margins even in the most challenging of macro environment. We have an extraordinary team and a clear vision.

We wake up every day and get the job done. And finally, I think we all know the best companies are authentic, purpose-driven and we have that in spades. So with that, thank you all so much. We're really excited to share our results, and I hope you have a great rest of your day.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Carrie Gillard -- Vice President, Investor Relations

Heather Hasson -- Co-Chief Executive Officer

Trina Spear -- Co-Chief Executive Officer

Daniella Turenshine -- Chief Financial Officer

Adrienne Yih -- Barclays Capital -- Analyst

John Kernan -- Cowen and Company -- Analyst

Bob Drbul -- Guggenheim Securities -- Analyst

Brian Nagel -- Oppenheimer and Company

Michael Binetti -- Credit Suisse -- Analyst

Alice Xiao -- Bank of America Merrill Lynch -- Analyst

Matthew Egger -- Piper Sandler -- Analyst

Brooke Roach -- Goldman Sachs -- Analyst

Dana Telsey -- Telsey Advisory Group -- Analyst

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