Roots Corporation (OTCPK:RROTF) Q3 2022 Earnings Conference Call December 9, 2022 8:00 AM ET
Company Participants
Meghan Roach – President, CEO
Mona Kennedy – CFO
Conference Call Participants
Matthew Lee – Canaccord Genuity
Stephen MacLeod – BMO Capital Markets
Sabahat Khan – RBC Capital Markets
Brian Morrison – TD Securities
Operator
Good morning. My name is Cole, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Roots’ Third Quarter Earnings Conference Call for Fiscal 2022. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there’ll be a question and answer session. [Operator Instructions].
On the call today we have Meghan Roach, President and Chief Executive Officer and Mona Kennedy, Chief Financial Officer of Roots, and Leon Wu, Vice President of Finance and Strategy, who will take over the role of CFO in January.
Before the conference begins, the company would like to remind listeners that the call including the Q&A portion may include forward-looking statements of our current and future plans, expectations and intentions, results, level of activities, performance goals or achievements, or any other future events or developments. This information is based on management’s reasonable assumptions and beliefs in light of information currently available to Roots and listeners are cautioned not to place undue reliance in such information.
Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its third quarter of Management’s Discussion and Analysis, and/or its Annual Information Form dated April 6, 2022 for a summary of the significant assumptions underlying forward looking statements, and certain risks, and factors that could affect the company’s future performance and ability to deliver on these statements. Roots undertakes no obligation to update or revise any forward-looking statements made on this call.
The third quarter earnings release the related financial statements and the Management’s Discussion and Analysis are available on SEDAR as well on the Roots’ investor relations website at www.investors.routes.com, a supplementary presentation for the Q3, 2022 conference call is available on the Roots Investor Relations site. Finally, please note that all figures discussed on this conference call are in Canadian dollars unless otherwise stated.
Thank you, you may begin your conference.
Meghan Roach
Good morning, and welcome to our earnings call. Before we discuss our third quarter results, I would like to address the current operating environment. We entered the third quarter in a position of strength, with sales up approximately 19% in the first half of 2022 and gross margin trending meaningfully higher year-over-year.
However, since we reported our Q2 results, we see a notable shift in the economy, which has impacted our sector. Consumer spending has tightened and discounting particularly in some of our core categories, has become more prevalent. As we walk through our third quarter results, we will highlight how these factors have impacted the business in the short term, and what effects we anticipate they will have during the remainder of the year and into 2023.
Before we do that, I want to emphasize a few things. For nearly 50 years, Roots has managed through diverse economic conditions, numerous changes in consumer behavior, and most recently, the global pandemic. We have worked tirelessly over the last three years to establish a more robust financial foundation for the business to support long-term growth and enable us to weather uncertain times.
We have and continue to be focused on sustainable profitable growth, creating a differentiated brand and product offerings and further enhancing our customer mix. We continue to see increased year-over-year traffic in our stores and feel good about the direction we are taking a product offering, as well as the long term strategy we have established the business
As the pressures affecting the economy continue, we anticipate a further impact on results in the fourth quarter and into 2023. However, we believe the fundamentals of the business remain intact.
Turning to our third quarter result, sales decreased 8.5% year-over-year to CAD69.8 million in the third quarter, while net income and adjusted EBITDA declined to CAD2.2 million and CAD7.3 million respectively. Well, Mona will dive into the financials in her section, I will speak to some of the sales trends.
We experienced a notable shift and sales in the second half of Q3, which has continued into the fourth quarter, including year-over-year declines in sales during our Black Friday and Cyber Monday events. We attribute these results to several factors. The first, which I highlighted at the start of this call, are the many factors impacting the economy currently, including inflation and higher interest rates. As noted, while we saw strong traffic in our retail locations, consumer spending has tightened affecting sales.
The second is the more aggressive promotional environment. At the end of the third quarter, we saw brands pulling forward Black Friday sales, and offering significant discounts to right size their inventory. This discounting was most notable in some of our core categories like sweatpants. As we discussed in previous quarters, we are choosing to remain emotionally disciplined when it comes to our core categories, as these are products we sell year-after-year.
While we intend to offer some discounts on seasonal products, which may impact near term margins, we plan to continue our pack and hold strategy in core collection. Undoubtedly, we may see an impact on sales in the short term as a result of this strategy. However, we continue to believe it is important to the brand integrity and building healthy margins over the longer term.
Finally, we saw a more prominent shift toward lifestyle products from casualwear as people return to offices and events. While, we had anticipated this change in consumer preferences and had been modifying or offering, it accelerated during the quarter and affected sales due to the relative importance of each category to our business.
We saw good growth in our lifestyle products such as men’s woven shirt, our waffle collection sweaters, however it does not offset the impacts of this near term wardrobe rebalancing on other casual items that are offerings such as sweatpants and fleece top.
For the last 50 years, we’ve offered a mix of lifestyle and more casual items, and we will continue to shift the balance to address the market needs. Our products continue to remain highly centered on quality and comfort and clothing that marry style and function. While we feel confident our core products remain relevant, we do anticipate further shifts in this area that may impact sales in Q4 and into 2023.
Turning to our recent operating highlight. We completed our website re-platforming a critical milestone supporting our mobile first omnichannel growth strategy. The benefits of a new platform include more real time data on consumer trends, enhanced mobile navigation, better search capabilities, and a more seamless back-end for order management and customer support. These technology improvements will offer additional insights into consumer behavior, render the online buying experience more frictionless, and over time should translate into higher online sales.
From a product perspective, our primary focus has been a significant undertaking associated with moving our fabrics to preferred fibers and materials, in-line with our sustainability objectives. I’m incredibly proud of all the hard work by the team to get us to this position today, where we can say that the majority of our products are now made with sustainable materials. We are continuing to explore new fabric innovations in this area to allow us to move to even more products to sustainable materials in the medium term.
We also recently launched several notable collaborations and capital [ph] collections. In October, we dropped a collection of OVO, starting Canadian NHL Legend Tie Domi that celebrate heritage in our current product icons. We fall this drop by making limited edition Toronto Maple Leaf jackets in support of the NHL and OVO. Our with Toronto-based Adidem Asterisks under the inaugural Roots’ Emerging Creators project represented another highlight in November.
This design mentorship program nurtures and offers exposure to emerging brands led by a new era of creator. By marrying Roots’ unique heritage, Adidem’s multidisciplinary approach to design and storytelling, the collection creates a shared perspective on the Canadian experience. It features 12 gender free styles, including varsity and bomber jackets, hoodies, sweatpants and leather goods produced in Canada.
Consumers are increasingly shopping across gender categories and we continue to believe that brands like Roots, which can adapt their collections to ever evolving market requirements will attract a wider range of buyers. Further responses to the collection have been very favorable.
We also teamed up with Mr. Saturday, who was recently named Canadian Menswear Designer of the Year. He used an retrofuturistic [ph] aesthetic to design an exclusive collection that’s inspired by the 1970s Jet Set culture and Roots Air, the brand’s short-lived airline from the early-2000s. This capture features iconography derived from vintage travel items in the form of embroidery, patches and print. Combining Mr. Saturday’s retrofuturistic construct with the effortless comfort and style that Roots is renowned for.
The joint collection including jackets, hoodies, sweatpants, and t-shirts, along with airline flight accessories like leather passport holders, packs, luggage tags and a blanket is the market last week and time for the holiday season.
During the quarter, we also continued moving forward with our sustainability commitments by joining the Fair Labor Association, which seeks to drive a positive impact through collective action. The Fair Labor Association provides a framework of best practices, collaboration with peers, as well as ongoing dialogue and support to improve workers’ lives for manufacturing operations and supply chain.
This latest milestone is another step in our efforts to strengthen our focus on CSR initiatives. As previously outlined, CSR is an integral part of our long-term strategy. And we remain fully committed to achieving our objectives toward 2022.
Looking ahead to the revenue intensive fourth quarter and into 2023, we anticipate that sales and margins will continue to be under pressure, as long as the current environment remains volatile. To mitigate these effects, we are pulling in a number of levers to maintain our competitive position, including strategically managing our inventory, and leveraging our strong balance sheet and liquidity position.
Our underlying strategy remains unchanged in the long-term. We remain focused on our four growth pillars that include offering an elevate omnichannel experience, reinforcing our brand position with high quality products that speak the needs of our customers, strengthening our commitments to CSR initiatives, and focusing on operational excellence.
While we plan to prudent with discretionary spending, we do intend to invest in areas necessary to support these growth pillars. I want to thank the incredible team at Roots for their continued hard work and dedication to the brand, especially during our peak holiday period.
On that note, I will turn the call over to Mona Kennedy, our CFO who will leaving us in January to pursue other interests in the CPG sector. I’ve greatly enjoyed partnering with Mona over the last few years, and I appreciate her contributions to the company. On behalf of groups and the board of directors, we wish her well.
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We anticipate a seamless transition with Leon Wu, who will be our new CFO. Leon joined the company in 2016 and has increasingly taken on major financial and operational roles during that time. Most recently he’s a Vice President of Finance and Strategy. He’s on the call today. But Mona will be delivering the financial overview of the quarter as usual and answering related questions. We look forward to having investors and analysts spend time with Leon in fourth quarter.
I’ll now pass the call over to Mona. Mona?
Mona Kennedy
Thanks, Meghan and good morning, everyone. During the third quarter, we faced macroeconomic headwinds and an increasingly promotional environment that negatively affected our sales and pressure that margins. Although this volatile market environment will likely persist in Q4 and into 2023, I firmly believe on the company’s underlying strategy to focus on profitable growth by elevating our brand and strengthening the fundamentals of our business over the long-term.
Our total sales decreased 8.5% to CAD69.8 million in the third quarter, from CAD76.3 million in Q3, 2021. DTC sales were CAD56.9 million in Q3 2022, down 10.4% year-over-year. This decrease was mainly driven by macroeconomic headwinds in the latter part of the third quarter, along with an intensified promotional environment and an accelerated consumer shift from fleece products towards lifestyle assortments.
P&O sales 0.5% to CAD12.9 million in the third quarter. The increase was mainly due to a favorable foreign exchange impact of CAD0.5 million on U.S. dollar sales in the quarter.
Gross margin declined 430 basis points, to 56.5% in Q3, 2022, from 60.8% in the same period last year. This decline can be attributed to the temporary impact of premium freight costs of 240 basis points, and a reduction in government subsidies of 55 basis points. Excluding these items gross margin was down 135 basis points year-over-year due to higher cost of products primarily from the shift to organic cotton and increased discounts on targeted inventory.
Although premium freight costs negatively affected our gross margins by 240 basis points in the quarter, we still expect the blended impact of such costs in the second half of the year to fall in the lower end of our 150 to 250 basis points forecasted range. Similar to the industry, we have seen improvements to the global freight markets in recent months. We believe this will represent a meaningful tailwind and reduced transit times and reduce reliance on premium freight in the coming quarters.
As it relates to global cotton and commodity prices, we have already made purchases through most of 2023 and will therefore not feel the full extent of the benefits of reduced input costs until 2024.
SG&A expenses totaled CAD33.8 million in Q3, 2022, up CAD4.4 million from CAD29.4 million in Q3, 2021. The 14.9% increase was mainly caused by a CAD2.6 million reduction in pandemic-related government subsidies and occupancy related cost abatements in Q3, 2022 compared to the same period last year. Excluding these items, SG&A rose CAD1.8 million year-over-year due to higher store costs related to increased operating hours, inflationary pressure on labor and e-commerce shipping costs, as well as investments in talent and marketing.
Adjusted EBITDA amounted to CAD7.3 million in Q3, 2022 compared to CAD19.2 million in the same period last year. Excluding the impact of government subsidies and occupancy related cost abatements, the adjusted EBITDA decrease was CAD8.9 million year-over-year. Net income totaled CAD2.2 million or CAD0.05 per share in Q3, 2022 versus CAD10.8 million or CAD0.25 per share in Q3, 2021 as an adjusted EBITDA government subsidies and rent abatements had a significant impact on the year-over-year variation.
Moving to the balance sheet highlights. Our inventory position grew 10% year-over-year to CAD72.9 million at the end of the third quarter. We feel comfortable with this level of inventory as two thirds of the increase was a result of our shift to organic cotton, which comes at a higher cost. We expect to continue to see elevated inventory for the balance of the year due to a combination of factors including the higher cost of organic cotton products, our catch and hold strategy on core inventory and lower sales.
In addition to our healthy inventory, we closed the third quarter in a solid financial position with net debt down 21% year-over-year to CAD58.7 million and unused borrowing capacity of CAD56.1 million under our revolving credit facility. Our net leverage ratio meanwhile, stood at 1.7 times at quarter end.
Looking ahead, we intend to remain disciplined with our cash allocation strategy. In a separate release today, we announced our intention to renew our share repurchase program or our normal course issuer bid for the repurchase of up to 2.1 million of our common shares, which represents 10% of our public float.
Given the volatile market environment over the past few months, we have been prudent and not repurchase any shares under the existing NCIB in most recent quarters. As we are now halfway through our peak period, we plan to be more opportunistic in share buybacks in the near term,
The focus will be on controlling spending without compromising the long term growth of the business and keeping a close eye on how the market unfolds.
In closing, this marks my last earnings call as Chief Financial Officer at Roots. I leave with the firm conviction that company is headed in the right direction with its highly differentiated product portfolio, elevated brand equity, longtime customer loyalty and omnichannel growth strategy, all supported by a strong balance sheet.
Despite temporary headwinds, I’m confident these competitive advantages will eventually translate into sustainable profitable growth as the company focuses on its long-term strategy and operational excellence.
This concludes our prepared remarks. With that operator, please open the line for questions.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we’ll now conduct the question-and-answer session. [Operator Instructions] Okay, your first question comes from Matthew Lee from Canaccord Genuity. Matthew, please go ahead.
Matthew Lee
Good morning and congrats on taking the next step. Thanks for taking my question. I suppose, it’s going to be on inventory. Q4 is traditionally the period where you bring inventory down, but it sounds like it’s going the opposite way based on the press release. Given that your inventory is mainly core items, I’d have thought that the level you’re at now be more than sufficient for at ’23, which could be a softer retail environment. Can you maybe just expand on the strategy of increasing inventory into Q4?
Meghan Roach
Hi, Matthew, and thank you. So from an inventory position, we ended the quarter 10% above last year. About two thirds of this is as a result of the higher cost of organic cotton and the inventory being at a higher cost. As we go into Q4, we do expect that our inventory to be above prior year levels for a number of different reasons.
So firstly, as I mentioned, the cost of organic cotton. Secondly, as we go into a kind of Q4, we know we brought in inventory a little bit earlier, so we have higher levels of inventory. And yeah, we’re going into our peak season and we have seen reduced sales. So there’s going to be a little bit of elevated inventory as a result of that. And as you know, our pack and fold strategy. So we do have two thirds of our inventory that is core, and as we see in lower sales, we do continue on our pack and hold strategy. But we’ll do targeted markdowns on seasonal products.
Matthew Lee
Okay, great. And then maybe on the top-line, can you just expand on what you can do at a company to offset customers shifting away from comfort and towards lifestyle?
Mona Kennedy
Yeah, I’ll take that Matthew. I think what we’ve seen in the quarter, which is interesting is some really good performance in a number of core styles. So in our woven tops or sweaters, we had never seen [ph] that it had really performed well. As an example, you have this Fair Isle cardigan that was $158 and sold out almost immediately. So we are seeing places in our category where we’ve already made that shift into some more lifestyle type products that are performing well, an evening was in our sleep category, there are pockets of things that are doing well like Dark Cloud Sleep.
What we’re seeing, though, is that because the market is much, much more promotional also in our space right now. We saw in the last couple of weeks and into October, people doing like 30% off 40% off, 45% off and with the categories in which we play. We think that’s part of what’s also impacting the sell through of our products, as we’re not being as aggressive promotion of some of our products.
So we think it’s a combination of some of the shifts that we’re already doing from a lifestyle perspective, where we are getting traction. And then we think it’s also kind of a rebound effect, as people get rid of the inventory that they had overbought, going into the coming into the pandemic, the back end of it. We think that will kind of keep them settling down in the competition space also, and that’ll benefit us.
And I think in the longer term, Matthew, as we said the core price that we’ve already wrapped year-over-year, it doesn’t make sense for us to discount those heavily as we were going to bring you back as next year also right. So we want to continue to be prudent on that, but we do understand that that might impact our sales in the short term.
Matthew Lee
Okay, that’s helpful. I appreciate the color.
Operator
Your next question comes from Stephen MacLeod from BMO Capital Markets. Stephen, please go ahead.
Stephen MacLeod
Thank you. Good morning and also, congrats Mona on your next step. Just a couple of questions, can you just give a little bit of color around what you’ve seen on a Q4 to date basis in terms of sales or traffic?
Mona Kennedy
Yeah, I mean, we — I think we’ve mentioned it, we’ve actually seen the traffic in our stores. And what we’re seeing though is we have seen year-over-year declines in sales and during our Black Friday and Cyber week. So continuation of the trends that we saw at the end of the third quarter we have due to Q4 so far. And again, we continue to attribute those three factors we mentioned. So the macro environment, kind of the economic impact of consumer tightening on spending due to inflation and interest rates. The second theme, is the highly promotional environment in which we see people really playing right now. And then the third thing being rebalancing of people’s wardrobes.
Right now people are obviously really focused on the Christmas holidays and buying things that they can use to go out, sequins, dresses or other things like that. And so we’re seeing a bit of that shift impacting us also.
Stephen MacLeod
Right, okay, thank you. And then just on that traffic to sales ratio. So are you seeing is traffic, is traffic also declining on a year-over-year basis?
Meghan Roach
No, it’s not. From our perspective we’re seeing year-over-year increases in traffic.
Stephen MacLeod
Yeah. Okay, thank you. And then just on the mix of products between lifestyle and more casualwear, can you just remind us of what — where that sits?
Meghan Roach
So we basically view our inventory of kind of T-shirts at its core. We don’t typically disclose kind of the lifestyle casual focus in our business. But what I would say is that, when you look at our business today, and we think of lifestyle things as plaid shirts, sweaters, things that kind of fall into that kind of woven bottom. And where we have those items, we are seeing good performance and year-over-year growth.
And then in our core fleece category, as I mentioned before, which would be sweat pants and sweat tops. There definitely has been a shift in particularly sweat bottoms over the last couple of months, I think as people kind of rebalancing their wardrobes, offices, and obviously events. I think the thing that’s important to remember though, is as a business that has been around for 50 years, and when we saw him sweat since 1979. From our perspective, we do believe that the core offering continues to remain relevant.
Well, we do think it’s happening. It’s a bit of a rebalancing. And we continue to expect those core products to be relevant next year, but we do believe that in the short term, you’re going to see that more or less the focus has shifted. People are thinking about parts of their wardrobe that they haven’t built up for many years.
Stephen MacLeod
Right. Okay. Okay, that that dynamic makes sense. Okay, that’s all I have right now. Thank you.
Meghan Roach
Thank you.
Operator
[Operator Instructions] Okay, there are no further questions at this — actually, there is. Your next question comes from Sabahat Khan from RBC. Please go ahead.
Sabahat Khan
Great. Thanks. And good morning. I’m just wanted to get a little bit more color on this shift that you were talking about in terms of just — the type of products that people are buying. I guess, is it just more the world is a lot more open today than it was one two years ago? Is it kind of just the tougher comps from the past couple of years? Just in terms of what do you seen sort of the mix out there in the broader retail space given at this point? And what it was it — is a macro also a part of affecting what people are buying? Just want to get a bit more color?
Meghan Roach
Yeah, absolutely. So let me walk through a few facts. From a macro perspective, I think you’re seeing a bigger impact in Canada than you are in other country. And I think, there’s some great results that came out through sales force that was showing the difference between Cyber Week in Canada versus Cyber Week in the U.S., with Canada’s being declined in Cyber Week, pretty meaningfully and kind of U.S. seen growth.
I think one of it is the exposure that we have to business to Canada from business perspective. That’s impacting us. And I think the interest rates and inflationary environment, from the economic perspective are impacting consumer spending even more significantly in the Canadian marketplace, based on some of these dots. So I think that’s important.
I think the second thing is that, we mentioned the promotional environment. And, when we look at our products, we have during Black Friday, or kind of a onetime storewide sale on some of our products, that doesn’t include things like salt, and pepper. But that includes other kinds of fleece items. A lot of businesses that are out there right now, given that they’ve had excess inventory are looking at 30%-40%-50% off in some of the categories in which we offer. So again, we think that’s impacting the purchasing kind of our specific products.
And the third thing is, is the category shift. And I would say that we have again, for 50 years been a business that offers lifestyle and casual items, I think you’ve seen a mix shift that balance of the items between more lifestyle and more casual items, multiple times during the last 50 years.
And what we’re seeing now is new because of the factors that mentioned the beginning, and then because of the fact that people don’t really have in their wardrobe a lot of items, they typically did have for going out or okay, those types of things. They’re focusing a bit more time now and rebuilding those aspects of their wardrobe. And so we’re seeing a bit of a rebalancing.
But our perspective is in the longer term, the core categories like sweaters or sweatshirts, those types of things, they can change around a core part of our business. We believe strongly in silhouettes and styles that we have. As I mentioned, we had new really good traction with things like our cloud fleet, which again, is a sweatshirt and is flat bottom item.
So we think there’s definitely places within our categories that we’re seeing good performance, but we do think that the industry right now is seeing a bit of a rebalancing. And I think this is well positioned to take advantage of that which to come on to the other side.
But in the short term, we expect to see impacts on sales, obviously. And then from a margin perspective and our non-core categories, when the market is much more highly promotional, we do expect to see some margin impacts, as we will play more heavily into some of the seasonal discounting happening right now.
Sabahat Khan
And I guess just kind of — there was a promotional activity that’s going on out there in this space? I guess just is it because your inventory is a lot more transferable to future season or future years? And that’s where you’re sort of holding off on promotions? Or is this sort of a view on look, we want to hold X amount of gross margin, or EBITDA margin, and we’re not going to promote kind of below that level? Just want to get perspective on how you’re thinking about how promotional you may want to be here?
Meghan Roach
Yeah, well, — so first off, if you look at Q3, we mentioned our inventory was only up 10% in Q3, which we think is pretty healthy. And then when you think about that 10% was two thirds of it being associated with the cost increase of your inventory. As a reminder, we switched almost all of our fleece products predominantly, and a significant portion of our production to organic or sustainable materials in the third quarter. So part of it inventory elevation is coming from cost, right, because we have a higher cost item, that’s one piece of it.
The second piece of it as it relates to our core product, we really do fundamentally believe in that balance between understanding what’s the profitability, you’re generating on that product. And so if I know I’m going to sell something, six months from now in full price, doesn’t make sense for me to discount that heavily just to pull forward sales to then buy into that product again next year. So I can sell it next year. It makes sense for me to think about the products spending sell year in year out passes. That ends up bringing them back out at the relevant time, and maintain that full margin perspective, where we do look at the markdowns more significantly in the seasonal categories, where we might say, maybe we have a novelty suite set that we brought and it might not be performing as well right now.
Those items we do take deeper discounts on. And we believe it’s important to you that clean up obviously our store base and our inventory balance, and make sure we can bring in more relevant items next year.
But we really do think about it and broken into multiple different segments, as if you’re running a salt and pepper item, which is bought again since 1979, because that’s how long it’s been in our collection. And we haven’t discounted that for years, going back into a cadence of discounting that heavily doesn’t make sense for us, because we know we have a consistent customer coming back again and again revising that product.
Sabahat Khan
Great. And then just one last one for me. I know there’s a topic that we talked about a bunch through the pandemic. But I guess as the world has reopened, traffic patterns are normalizing sort of have you had a look at sort of the traffic level, the store base, that sort of seeing if there are any that maybe — there’s enough of the volume policy in store has moved on? And how are you thinking about the storefront at this point and cycle?
Mona Kennedy
Good morning, Saba. So from a store perspective, our strategy hasn’t changed. We continue to be very analytical about it. As we said previously, 95% of our stores are profitable. We continually monitor their profitability. And from an expansion perspective, we are using pop ups as a test and learn strategy. We currently have 13 pop ups open. There’s two of them that we’ve made permanent in the past year as the tests are approved, right. So our strategy in terms of store footprint hasn’t changed, and we continue to monitor it.
Traffic in stores have been up for the past quarter. So store traffic is improving and going to pre-pandemic levels. And we don’t see any substantial shift in our store footprint in the near term or midterm.
Meghan Roach
And we view it as — we have seen this was interesting, and definitely a significant increase in tourist in urban locations through traffic perspective. So you are seeing that, people are going back to the office more regularly, where we have a more open economy where people can come to our tourist location, that’s definitely positively impacting traffic. And we see some really good results coming out those location.
Sabahat Khan
Perfect, thanks very much for the call.
Operator
Your next question comes from Brian Morrison from TD Securities. Brian, please go ahead. Brian, are you there?
Brian Morrison
Yes, sorry about that. Meghan, apologies. I think you’ve just answered my question. But I presume that you plan to execute for clean of any non-core inventory, correct?
Meghan Roach
That’s right. Yeah, we plan clean as a non-core inventory. Again, the market is incredibly promotional. So we will be looking at that in the coming weeks. But that’s definitely a focus for us.
Brian Morrison
And then just lastly, is there a margin profile difference between your lifestyle offering and your casualization offering? And are you able to, or would you want to make a shift to cater the environment in order to have a greater weighting towards lifestyle?
Meghan Roach
Yeah, I think that it depends on the product specifically. And so we have items, when we look at our — we have a concept called [indiscernible] scale. So obviously our [indiscernible] scale items, which are even smaller items we invest and to test those in the marketplace. And then look at the volume if they indicate traction, those technically have maybe a little bit of a lower margin, but we tend to focus on achieving the same margins across our collections. So we do believe we have the potential to continue to shift more into some lifestyle item.
And just to re-emphasize again, from the third quarter perspective, we did see good growth and things like sweaters and wovens and those things where we have them. I think that it’s a matter of how quickly we saw the shift in the quarter especially given that there was a lot of promotions in our sector, that’s shift with kind of further emphasize.
And I think that the secondary thing too is that you are getting to where rebuilding your other wardrobe again. So I think there will be some normalization is that that kind of comes into the second half probably next year. But we do believe we can and do have a robust lifestyle offering. And I think things like our journey collection on the active wear side of things, those are continuing to perform well for us. So there’s a number of pieces within our collection, and we do believe we’ll continue to see success.
Brian Morrison
All right, thanks very much, and good luck Mona, on your new endeavor.
Mona Kennedy
Thank you.
Operator
There are no further, sorry — there are no further questions at this — actually, we do have a follow up question from the Sabahat from RBC. Please go ahead.
Sabahat Khan
Great, thanks. Just one quick follow up, I guess this is more of a longer term question. And as, we do look at a potential macro slowdown here have – kind of permanent changes to pricing, or maybe a lower price line, have you guys kind of considered some of those things? Or do you think kind of from a brand perspective, maintaining the prices at the current level probably makes more sense?
Just thinking more from a longer term perspective, whether it’s a structurally new lower price point line, or just moving price points lower, even just outside of promotional activity? Just want to get your perspective on how you do that, compared to some of the competitors or the other offerings out there?
Meghan Roach
No, I mean, we continuously, that we have a proprietary offer your products that, we think our consumers are willing to pay for. I think we have seen AUR improvements, continuously which is positive. But what I would say is, I mean, I can give a couple of answers. Our highlight the product category. So we launched this quarter are one gender free one robe $148. It’s been almost entirely sold out.
We also launched something called the Fair Isle cardigan, again, $158 sold out, right. So these are higher priced items in our collection. We’re not seeing impacts from our consumer perspective on that specifically.
And you mentioned, everything seems good traffic in the stores. And we do think it’s a combination of those factors that I mentioned, but it’s causing the performance that we’re seeing. And it’s not necessarily related to specifically price sensitivity. We haven’t seen that people coming in and having any price and spending per se. It’s just how they’re building their baskets are changing. So, maybe before they would buy a baby outfit and buy a sweater, pants, t-shirt, hat with some socks or something like that. And now they may just buy a pair of pants and a sweater, right.
So it’s really just people are modifying and thinking about their spending habits, typically, with a combination of the other items I mentioned, that we’re seeing unpacking it. But from a price perspective, we feel good about our current prices. We feel good about our current position in the marketplace from that perspective. I don’t think you’ll be seen as take price off anytime in the short term, because you feel comfortable where we currently are. But we do think that that’s not an impact right now in terms of what we’re seeing.
Sabahat Khan
Great, thanks very much. That’s it for me.
Operator
Great. There are no further questions at this time. I’ll turn it back to Meghan for closing remarks.
Meghan Roach
Thank you for joining us for our third quarter results. We look forward to speaking to you in the New Year when we take you through Q4.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. And ask that you please disconnect your lines.
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