The complaint alleges that FIGS, Inc. misled investors regarding its ability to cost-effectively meet customer demand.
FIGS operates as a direct-to-consumer healthcare apparel and lifestyle company in the United States. Best known for its medical scrubs, it also designs and sells other healthcare apparel, such as lab coats, under scrubs, outerwear, activewear, loungewear, compression socks footwear, and masks.
On June 1, 2021, FIGS announced the closing of its IPO. Defendants offered shares at $22 per share. Leading up to the IPO and during the Class Period, defendants: (i) inflated the Company’s true ability to successfully secure repeat customers; (ii) failed to disclose the Company’s increasing dependence on air freight; and (iii) inflated the expected net revenues, gross margin, and adjusted EBITDA margin for 2022.
The Registration Statement claimed that due to the Company’s access to significant customer data, it was able to maintain an efficient and steady supply chain. The truth was, however, that the Company’s access to data did not allow it to mitigate supply chain problems through predictable sales. Instead, FIGS had to increasingly rely on air freight that costs materially more than the overseas shipping it was previously reliant on. The Registration Statement blamed the COVID-19 pandemic for the use of air freight in the time leading up to the IPO. The truth, was, however, that FIGS was continually relying on air freight for its business. Even after the IPO, as the Company continued to rely on cost air freight, the defendants continued to claim that air freight was transitory. For example, defendants stated that the use of air freight was at its “peak” during the fourth quarter of 2021, and that “we’re pretty confident that we’re going to see less airfreight overall than we’re seeing it in [the fourth quarter] as we get into .”
On May 12, 2022, the Company announced disappointing results and slashed its expected sales, gross margin, and adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) because of these “supply chain” issues. FIGS also admitted that not only did they continue to rely on air freight during the first quarter of 2022, but that “[f]or the rest of the year, we plan to significantly increase our use of airfreight to reduce our exposure to these unpredictable transit times.” On this news, the Company’s stock price fell $3.21 per share, approximately 25%, to just $9.64 per share.