On Friday, Telsey Advisory Group adjusted its outlook on Figs Inc. (NYSE: NYSE:FIGS) shares, raising the price target to $7.00 from the previous $6.00 while retaining a Market Perform rating on the stock. The adjustment follows Figs Inc.'s reported earnings, where the company delivered an adjusted EBITDA that surpassed expectations.
This performance was attributed to sales that were slightly above forecasts, coupled with favorable operating expense leverage, which helped to counterbalance a weaker gross margin.
The company's management has expressed confidence in the ongoing momentum of the business, particularly noting the increased frequency of repeat customers.
This success is being driven by factors such as product innovation, new collections, and visibility gained from the Olympics marketing campaign. In light of the stronger performance in the first half of the year and clearer projections for the third quarter and beyond, Figs Inc. has revised its sales outlook upwards, surpassing the midpoint of prior consensus estimates.
However, the high end of the previous adjusted EBITDA margin guidance has been reduced due to the expectation that gross margin pressures will persist.
Figs Inc.'s management pointed to a shift in product mix, with newer offerings outperforming core styles, as a reason for the gross margin headwind. Still, they anticipate that improved marketing strategies and general and administrative cost management will partially mitigate this.
Telsey Advisory Group recognizes Figs Inc.'s strong direct-to-consumer (DTC) position in the healthcare apparel space and its potential to expand into less saturated markets and grow through its TEAM business.
Despite these positive factors, Telsey maintains a cautious stance, citing the company's ongoing recovery process from previous execution issues within a challenging macroeconomic environment.
The revised price target of $7.00 is based on a 12.4x multiple applied to the two-year forward adjusted EBITDA estimate of $73 million, which aligns with the three-year next twelve months (NTM) median multiple.
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