Shares of Figs Inc. hovered around $7 last month — a 70% dip from November 2021. The tepid third-quarter earnings report did not help, prompting the Santa Monica-based health care apparel brand to revise its revenue guidance for 2022 to $495 million, down from a range of $510 million to $530 million.
Chief Executive Catherine Spear said that “the sustained level of inflation (has) began to weigh more heavily” on Figs’ customers, who according to surveys still love the brand but are “pulling back on purchases due to their tighter budget.”
Company management, discussing gross margin decreases cited increased freight costs, higher promotions mix and recent product launches that “did not generate the same sales lift we have typically seen in the past,” during a call with analysts on Nov. 10.
While Wall Street remained on the fence about the value of Figs’ stock, the company did notch a major win last month.
Its protracted legal battle with a Chatsworth-based competitor came to an end on Nov. 4, when a jury from the US District Court for the Central District of California found that Figs did not falsely advertise that its “scrubs kill bacteria and infection immediately on contact,” which would have been a violation of the Lanham Act.
Strategic Partners Inc., which changed its name to Careismatic Brands Inc., filed the lawsuit in 2019, seeking more than $120 million in lost profits and punitive damages. It also raised an issue with Figs’ statements that its “scrubs reduce hospital acquired infection rates by 66%” and that the company “donates one set of scrubs for every set sold.” The jury, after a day-long deliberation, dismissed those claims as well, according to court documents.
“SPI has spent the last four years spreading lies and falsies about our company and myself personally, (and) my co-founder, Heather Hasson,” Spear told analysts. “We have really done a good job about putting blinders on and just focusing on growing our business, focusing on serving our community. But I am really proud to say that after four years, it’s a profound feeling to finally have our day in court …where finally the truth came out. And after three weeks of trial, the jury unanimously found in our favor on every single issue. They found that we did nothing wrong.”
In addition to “putting blinders on” and focusing on growing its business, Figs set up a website — facts-and-figs.com — on which it refuted SPI claims. It posted screenshots of emails sent by Careismatic Brands’ former Chief Executive Mike Singer, in which he was asking his team for a strategy to “attack” Figs.
“The normal approach that companies often take is to kind of ‘no comment’ everything about litigation, but we really wanted to make sure that we were transparent with our investors and with the world about what this case was about, and what was actually going on … rather than leave it to SPI’s unfair attacks to determine the narrative,” said Todd Maron, Figs’ chief legal officer, who prior to joining Figs in 2021, held a similar post at Tesla Inc.
Starting out
Spear co-founded Figs with Hasson in 2013. The digital-native brand sells 98% of its products through its website and mobile app. Its scrubs are made with proprietary fabric technology, called FIONx, that offers four-way stretch and moisture-wicking properties. Figs has about 270 employees and outsources its garment manufacturing operations to factories in Southeast Asia, China and South America.
Careismatic Brands, founded in 1995, manufactures health care apparel and school uniforms through multiple brands, including Cherokee Uniforms and Dickies Medical, that are sold via distributors to customers in more than 70 countries. Partners Group Holding, a Switzerland-based private equity firm with $127 billion in assets under management, acquired the company last year in a deal valued at $1.3 billion.
“Careismatic Brands takes our position as a leader in the medical apparel industry seriously, and brought this case to protect health care workers, force Figs to stop making false claims, and ensure a fair and transparent marketplace,” Careismatic Brands’ Chief Executive Girisha Chandraraj said in a statement.
Figs garners roughly 10% of the North American market for health care apparel, while Careismatic’s share is about 30%, according to Figs’ Maron. He added that Careismatic in 2016 sued another one of its competitors, Vestagen Protective Technologies Inc., accusing it of false advertising related to performance of their scrubs. It also prevailed in a $5.3 million trademark infringement case against Santa Monica-based Koi Design, a scrubs manufacturer that ended up filing for bankruptcy in 2019.
“I just think it’s a price of success,” Maron said. “When you’re successful and innovative and disruptive, people will try to take you down … My recommendation to other companies in the same situation is to fight and defend yourself, and let the truth prevail rather than get bullied by these kinds of attacks.”
He added that Careismatic would likely appeal the ruling. “I’m sure that they will continue to do what they’ve done for the last four years, which is to attempt to bully us and to try to litigate us to death,” Maron said. “We’re just going to keep the same approach that we’ve had for the last four years, and keep fighting.”
