Roots Corp

TSX:ROOT

Earnings Call Transcript 2023-Q3

[Operator]

Good morning. My name is Colin, 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. [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 on 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 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 analysis are available on SEDAR as well on the Roots Investor Relations website at www.investors.roots.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, executive]

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 margins 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 3 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 offering and further enhancing our customer base. We continue to see increased year-over-year traffic in our stores and feel good about the direction we are taking our product offering as well as the long-term strategy we have established for the business.

As the pressures affecting the economy continue, we anticipate a further impact on the results in the fourth quarter and into 2023, however, we believe the fundamentals of the business remain intact. Turning to our third quarter results. Sales decreased 8.5% year-over-year to $69.8 million in the third quarter, while net income and adjusted EBITDA declined to $2.2 million and $7.3 million, respectively.

While Mona will dive into the financials in her section, I will speak to some of the sales trends. We experienced a notable shift in 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 the 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 rightsize their inventory. This discounting was most notable in some of our core categories like sweat pants.

As we discussed in previous quarters, we are choosing to remain promotionally disciplined when it comes to our core category 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 collections. 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 towards lifestyle products from casual wear as people return to offices and events. While we had anticipated this change in continued preferences and had been modifying our 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 shirts, our waffle collection sweaters, However, it did not offset the impact of this near-term wardrobe rebalancing on other casual items in our offerings such as sweat pants and fleece tops.

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 in closing 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 into 2023.

Turning to our recent operating highlights. We completed our web site replatforming a critical milestone supporting our mobile first omnichannel growth strategy. The benefits of the 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 the 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, and 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 collections. In October, we dropped a collection of OVO staring Canadian NHL legend Tie Domi that celebrated heritage and our current product icon. We followed this drop by making limited addition Toronto Maple Leafs jackets in support of the NHL and OVO. Our partnership 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 creators.

By marrying Root's unique heritage with Adidem's multidisciplinary approach to design and storytelling, the collection created a shared perspective on the Canadian experience. It features 12 gender-free styles, including Varsity and Bomber jackets, hoodies, sweat pants and leather goods produced in Canada. Consumers are increasingly shopping across gender categories, and we continue to believe that brands like Root, which can adopt their collections to ever-evolving market requirements will attract a wider range of buyers.

Early responses to collection have been very favorable. We also teamed up with Mr. Saturday, who was recently named Canadian Mentor Designer of the Year. He used relevant aesthetic to design an exclusive collection that is 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 prints. Combining Mr. Saturday's retro futuristic construct with the effortless comfort and style that Roots is renowned for.

The joint selection, including jackets, hoodies, sweat pants and T-shirts, along with airline inspired accessories like leather passport holders, hats, luggage tags and a blanket, hit the market last week in time for the holiday season. During the quarter, we also continued moving forward with our sustainability commitment 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 through 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 for 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 4 growth pillars that include offering an elevated omnichannel experience, reinforcing our brand position with high-quality products that speaks the needs of our customers, strengthening our commitment to CSR initiatives and focusing on operational excellence.

While we plan to be 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 leave Roots in January to pursue other interests in the CPG sector. I've greatly enjoyed partnering with Mona over the last 3 years, and I appreciate her contributions to the company. On behalf of Roots and the Board of Directors, we wish her well.

We anticipate a seamless transition as Leon Wu 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 as the Vice President of Finance and Strategy. He is on the call today, but Mona will be delivering the financial overview of the quarter as usual and answer related questions. We look forward to having investor and analysts spend time with Leon in the fourth quarter. I will now pass the call over to Mona. Mona?

[Mona Kennedy, executive]

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 pressured our margins. Although this volatile market environment will likely persist in Q4 and into 2023, I firmly believe in 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 $69.8 million in the third quarter from $76.3 million in Q3 2021.

DTC sales were $56.9 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 rose 0.5% to $12.9 million in the third quarter. The increase was mainly due to a favorable foreign exchange impact of $0.5 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 cost 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 in reduced transit times and reduced reliance on premium freights 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 $33.8 million in Q3 2022, up $4.4 million from $29.4 million in Q3 2021. The 14.9% increase was mainly caused by a $2.6 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 $1.8 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 $7.3 million in Q3 2022 compared to $19.2 million in the same period last year. Excluding the impact of government subsidies and occupancy-related cost abatements, the adjusted EBITDA decrease was $8.9 million year-over-year. Net income totaled $2.2 million or $0.05 per share in Q3 2022 versus $10.8 million or $0.25 per share in Q3 2021.

As with 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 $72.9 million at the end of the third quarter. We feel comfortable with this level of inventory as 2/3 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 pack-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 $58.7 million and unused borrowing capacity of $56.1 million under our revolving credit facility. Our net leverage ratio meanwhile stood at 1.7x 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 repurchased 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 the company is headed in the right direction with its highly differentiated product portfolio, elevated brand equity, long-time 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.

[Operator]

[Operator Instructions] And your first question comes from Matthew Lee from Canaccord Genuity.

[Matthew Lee, analyst]

Congrats on taking the next step. 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 to be up in the way based on the press release. Given that your inventory is mainly core items, I have thought that the level you're at now will be more than sufficient for FY '23, which could be a softer retail environment. Can you maybe just expand on the strategy of increasing inventory into Q4?

[Meghan Roach, executive]

Matthew, thank you. So from an inventory position, we ended the quarter 10% above last year. About 2/3 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 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 kind of Q4, we know we brought in inventory a little bit earlier, so we have higher levels of inventory. And yes, 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 hold strategy. So we do have 2/3 of our inventory that is core. And as we see lower sales, we do continue on our pack and hold strategy, but we'll do targeted markdowns on seasonal products.

[Matthew Lee, analyst]

Okay. Great. And then maybe on the top line, can you just expand on what you can do as a company to offset customers shifting away from comfort and towards lifestyle?

[Meghan Roach, executive]

Yes, I'll take that, Matthew as we've seen in the quarter, which is interesting, it's a really good performance in a number of core styles. So in our woven tops or sweaters, we had a number of things that have really performed well. As an example, we had this sterile Cardigan that was $158 and sold that 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. And even within our fleece categories, there are pockets of things that are doing well like our Cloud tees.

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 into October people doing like 30% off, 40% off, 45% off some of 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 on some of our core 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 gaining traction. And then we think it's also kind of a rebalancing of fact as people get rid of the inventory that they have overbought going into the -- coming into the pandemic at the back end of it.

We think that we'll kind of see some settling down of the competition in the space also and that will benefit us. And I think in the longer-term Matthew, as we said, the core products that we bring back year-over-year, it doesn't make sense for us to discount those heavily as we're going to bring them 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.

[Operator]

Your next question comes from Stephen MacLeod from BMO Capital Markets.

[Stephen MacLeod, analyst]

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?

[Meghan Roach, executive]

Yes. I mean we've -- I think we've mentioned, we are actually seeing good 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 seen in Q4 so far. And again, we continue to attribute those to the 3 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 being really the highly promotional environment in which we see people really play right now. And then the third thing being this 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 like sequence structures or other things like that. And so we're seeing a bit of that shift impacting us also.

[Stephen MacLeod, analyst]

Right. Okay. 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, executive]

No, no, it's not. We -- from our store perspective, we're seeing year-over-year increase in traffic.

[Stephen MacLeod, analyst]

Yes. Yes. Okay. Okay. And then just on the mix of product between lifestyle and more casual wear, can you just remind us of what that -- where that sits?

[Meghan Roach, executive]

So we basically view our inventories kind of 2/3 of it as core. We don't technically disclose kind of the lifestyle casual focus in our business. But what I would say is that when you look at our business today, we think of lifestyle things as class shirts, sweaters, things that kind of fall into that category, woven bottom. And where we have those items, we are seeing decent performance in year-over-year growth. And I think in our core fleece category, as I mentioned before, 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 wardrobe to look at 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 went up from selling sweats since 1979, from our perspective, we do believe that the core offering is to remain relevant. What we do think is happening is 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 a bit more lifestyle focus in shift as people are thinking about parts of their wardrobes that they haven't built up for many years.

[Stephen MacLeod, analyst]

Right. Okay. Okay. That dynamic makes sense. Okay, that's all I have right now. Thank you.

[Operator]

[Operator Instructions] Your next question comes from Sabahat Khan from RBC.

[Sabahat Khan, analyst]

I 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 of the world is a lot more open today than it was 1, 2 years ago? Is it kind of just the tougher comps in the past couple of years, just in terms of what are you seeing sort of the mix out there in the broader retail space given at this point? And is the macro also a part of affecting what people are buying? Just wanted to get a bit more color.

[Meghan Roach, executive]

Yes, absolutely. So let me -- I think I'm going to walk through a few facts. So from a macro perspective, I think you're seeing a bigger impact in Canada than you are of another country. And I think there's some great results that came out from Salesforce that was showing the difference between Cyber Week in Canada versus Cyber Week in the U.S., with Canada seeing declines in Cyber Week pretty meaningfully and kind of U.S. seeing growth.

So I think one of it is the exposure that we have to business -- to Canada from a business perspective that's impacting us. And I think the interest rates and inflationary environment from the economic perspective are impacting consumer spending seems more significantly in the Canadian marketplace based on some of these facts. So I think that's important.

I think the second thing is that we mentioned the promotional environment. And when we look at our core products, we have Black Friday kind of a onetime store-wide sale on some of our products. That doesn't include things like Salt & Pepper but does include other kind of fleece items. A lot of the businesses that are out there right now, given that they had excess inventory are looking at 30%, 40%, 50% off 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 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 us 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 because of those factors I mentioned at 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 in rebuilding that specific wardrobe, and so we're seeing a bit of a rebalancing.

But our perspective is in the longer term, the core categories like sweats or sweat shirts, those types of things, they continue to remain a core part of our business. We believe strongly in the lifestyles that we have. As I mentioned, we had really good traction with things like our cloud fleece, which again is a sweat shirt and a sweat 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 we think Roots is well positioned to take advantage of that once we come out to the other side.

But in the short term, we expect to see impact on sales, obviously. And then from a margin perspective, in our noncore categories when the market is much more highly promotional, and we do expect to see some margin impact as we will play more heavily into some of the seasonal discounting happening right now.

[Sabahat Khan, analyst]

And I guess just kind of the promotional activity that's going on out there in the space. I guess, just is it because your inventory is a lot more transferable to future season in the future here, 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. So want to get your perspective on how you're thinking about how promotional you may want to be here.

[Meghan Roach, executive]

Yes. Well, the first half -- if you look at Q3 and I mentioned our inventory was only up 10% in Q3, which I think is pretty healthy. And when you think about that 10% with 2/3 of it being associated with the cost decrease in your inventory. As a reminder, we switched almost all of our fleece products, predominantly and a significant portion of our collection to organic or sustainable materials over the third quarter. So part of that 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 am going to sell something 6 months from now in full price, it 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, right?

It makes sense for me to think about the product selling all year in and year out, pass those items up, bring them back out at the relevant time and maintain my full margin perspective. Where we do look at the markdowns more significantly is in seasonal categories where we might say, maybe we have a novelty fleece set that we brought in 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 pulling up obviously our store base and our inventory balance and make sure we can bring in more relevant items into next year.

But we really do think about it and broken into multiple different segments. As if you're buying a Salt & Pepper item, which we bought, again, since 1979 because that's how long it's been in our collection, and we haven't discounted that for 2 years. Going back into a cadence of discounting that heavily, it doesn't make sense for us because we know we have a consistent customer that comes back again and again to buy these said products.

[Sabahat Khan, analyst]

Great. And then just one last one for me. I know this is 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 and sort of seeing if there are any that may be there's enough of the volume from a certain store has moved down line? How are you thinking about the store print at this point in the cycle?

[Mona Kennedy, executive]

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 2 of them that we've made permanent in the past year as the test on 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 prepandemic levels, and we don't see any substantial shift in our store footprint in the near term or midterm.

[Meghan Roach, executive]

And the only thing that I'd add here is that we have seen this as interesting. There's definitely a significant increase in tourists in urban locations from a traffic perspective. So you are seeing that people are going back to the office more regularly or we have a more open economy where people can come to our tourist locations. That's definitely positively impacting traffic and we see some really good results coming out of those locations.

[Operator]

Your next question comes from Brian Morrison from TD Securities.

[Brian Morrison, analyst]

Meghan, I apologize. I think you just answered my question, but I presume that you plan to exit Q4 clean of any noncore inventory, correct?

[Meghan Roach, executive]

That's right. Yes. We plan to cleanup any noncore inventory. Again, the market is incredibly promotional. So we'll be looking at that in the coming weeks, but that's definitely a focus for us.

[Brian Morrison, analyst]

And then just lastly, is there a margin profile difference between your lifestyle offering, your casualization offering? And are you able to or would you want to make a shift to cater the environment and you will have a greater weighting towards lifestyle?

[Meghan Roach, executive]

Yes. I think that it depends on the product specifically. I mean so we have items when we look at our -- this conference call seed to scale. So obviously, our seed to scale items, which are smaller items, we invest in to test those in the marketplace and then look at volume, if they make traction, those types we have with 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 items.

And just to reemphasize again, from a third quarter perspective, we did see good growth in 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 shift was kind of further emphasized. And I think that the secondary thing too is that you are getting to rebuilding your other wardrobes again.

So I think there will be some normalization of 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 Dorney collection on the Activewear side of things, those are continuing to perform well for us. So there's a number of pieces within our collection that we do believe we'll continue to see success.

[Brian Morrison, analyst]

All right. Good luck on the new endeavor.

[Operator]

We do have a follow-up question from Sabahat from RBC.

[Sabahat Khan, analyst]

Just one quick follow-up. I guess this is more of a longer-term question. 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 the flip side of promotional activity. I just wanted to get your perspective on how you view that compared to some of the competitors or the other offerings out there.

[Meghan Roach, executive]

No, I mean we have a proprietary offering of products that we think the 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'll give you a couple of answers or highlights of product categories. So we launched this quarter our one gender free one robe for $148. It's been almost entirely sold out. We also launched something called sterile Cardigan $158, sold out. right? So these are higher-priced items in our collection that we're not seeing impact from our consumer perspective on that specifically.

And you mentioned that we're seeing good traffic in the stores. We do think it's a combination of those factors that I mentioned that is causing the performance that we're seeing. And it's not necessarily related to typically price sensitivity. We haven't seen that people coming in and having any price sensitivity per se. It's just how they're building their basket is changing. So maybe before they would buy a baby outfit and buy a sweater pant, a t-shirt, hat and some socks or something like that and now they are maybe just like sweat pants and a sweater, right?

So it's really just people are modifying and thinking about their spending habits differently with the combination of the other items I mentioned that we're seeing impacting 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 being seeing the price up any time in the short term because we 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.

[Operator]

There are no further questions at this time. I'll turn it back to Meghan for closing remarks.

[Meghan Roach, executive]

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.