Highly Valued FIGS Lowers Guidance, Moves Lower
Shares of FIGS, Inc (NASDAQ: FIGS) are moving lower in the wake of the Q1 earnings report and it is no wonder. The niche brand of workwear reports supply chain, inflation, and worse, a shift in consumer spending related to inflation, is cutting into results. The bad news is the analysts are lowering their targets and reducing their ratings which is a weight on share prices. The good news is the 13 analysts with coverage of the stock have a consensus of Buy with a price target near $26.75. That is 175% above the current price action but comes with a caveat. While the company has been picking up new analyst coverage over the last few months, the trend in sentiment and price target is downward. The Marketbeat.com consensus price has been trending steadily lower since the IPO and we think that trend will continue.
The company has received four analysts' commentaries since the release of earnings and none of them are good. Two of the four include price target reductions to an average of $16.50 which is well below the Marketbeat.com consensus. The other two include both rating downgrades and price target reductions that amount to a sell order in our opinion. The downgrades are to Neutral from Buy with price targets of $12 and $13 which implies investors should cut back on their holdings because the price is about to fall. Assuming the current macroeconomic trends continue, we see the guidance getting cut again.
FIGS Has Great Quarter, But The Analysts Don’t Care
FIGS had a great quarter but it wasn’t enough to warrant the high 58X earnings multiple and earnings fell short. On the top line, the revenue came in at $110.1 million which is up 26.4% from last year but 600 basis points short of the expectations. The company says the gains are driven by a 31% increase in active users, a 6.1% increase in revenue per customer, and a 16% increase in average order value. The bad news is that both the gross and operating margins contracted.
The company’s gross margin contracted by a mere 40 basis points but operating expenses increased by 560 basis points relative to revenue. The net result was worse than expected. The company reported $0.05 in both GAAP and adjusted EPS which leaves the adjusted earnings 16.6% below consensus versus the 600 bps of underperformance on the top line. Looking forward, the company is expecting margin pressure to continue at least in the near term. There is some optimism in the outlook but execs are forecasting headwinds to last through the end of the year at least and improvement may be wishful thinking. As for the guidance, the company guided FY revenue and earnings below the consensus.
“While we anticipate these challenges to continue throughout the year, we believe they will ease in the future, and we will return to our long-term target,” says CFO Daniella Turenshine.
The Technical Outlook: FIGS Falls Flat On Outlook
Price action in FIGS fell to the post-IPO low following the Q1 results and outlook and may fall further. The stock is sitting on a very high short interest and it doesn’t look like there is much buying going on. The indicators suggest the stock could be overextending but the signal is weak and could persist for quite some time before a rebound actually occurred. In our opinion, this stock is about to move lower, perhaps down to the $7 level or lower.
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