ODDITY Tech Ltd. Q2 FY2026 earnings call

• Il Makiage Resolution Efforts: Management is working intensively with its largest advertising partner to resolve an algorithmic dislocation affecting audience targeting and Customer Acquisition Cost (CPA). They believe the issue is technical, solvable, and unrelated to brand strength, with sequential improvements observed in year-over-year revenue decline rates.
• Strategic Pivot to Medical-Grade Beauty: Methodic represents a strategic expansion into higher-margin, medical-grade categories. The brand utilizes Oddity Labs’ proprietary molecules (e.g., Mellanex 509) and AI-driven computer vision assessments to offer personalized treatment plans that mimic high-touch doctor visits.
• Diversification and Resilience: The company highlights the resilience of its multi-brand portfolio. While Il Makiage struggles, Spoilchild continues to scale rapidly, and Methodic is gaining traction. This diversification reduces reliance on any single brand.
• Consumer Trends and Innovation: Management notes a convergence of beauty and medicine, with consumers demanding efficacy and personalization. Oddity is positioning itself to capture this demand through direct-to-consumer channels and innovative product pipelines, including future expansions into longevity and metabolic health.
• Capital Allocation: The company remains committed to shareholder value through aggressive share repurchases ($163 million YTD) and opportunistic debt management, such as repurchasing exchangeable notes at a discount. Liquidity remains strong with $561 million in cash and investments.

• Il Makiage: Net revenue declined significantly due to ad account dislocation. First-order revenue dropped ~40% YoY, and repeat order revenue fell ~20%. Average Order Value (AOV) declined ~8%, driven by the loss of high-AOV first orders and a product mix shift away from skin care.
• Spoilchild: Demonstrated strong performance with net revenue on track to approach $350 million in 2026. The brand maintains robust customer metrics, including 12-month net revenue repeat rates exceeding 100%. It is less impacted by the Il Makiage algorithm issues than previously expected.
• Methodic: Launched several months ago and showing great promise. Management expects first-year revenue to exceed Spoilchild’s first-year results. The brand focuses on medical-grade products like hyperpigmentation treatments, leveraging computer vision for personalized protocols.

• Q3 2026 Revenue: Expected to decline approximately 5% year-over-year, representing a significant sequential improvement from the first half.
• Full Year 2026 Revenue: Expected to decline approximately 19% year-over-year, driven by the severe impact on Il Makiage in the first half.
• Q3 2026 Adjusted EBITDA: Expected to be between $18 million and $20 million.
• Full Year 2026 Adjusted EBITDA: Expected to be between $30 million and $32 million.
• Long-term Outlook: Management aims for Il Makiage to return to growth in 2027 once acquisition costs normalize. They anticipate continued strong growth for Spoilchild and Methodic.

• Ad Algorithm Dislocation: The ongoing technical issue with the primary advertising partner poses a significant risk to Il Makiage’s revenue and CPA efficiency. Failure to resolve this could delay recovery until 2027 or later.
• Inventory Imbalance: Excess inventory built up in anticipation of stronger Il Makiage sales needs to be managed, though the company expects better balance in 2027.
• Geopolitical Volatility: Operations in Israel face risks due to regional conflict dynamics affecting store bases and consumer behavior.
• High Acquisition Costs for New Brands: Methodic faces higher upfront customer acquisition costs compared to makeup brands, requiring longer payback periods, although LTVs are projected to justify these costs.

Q: Analyst asked if Il Makiage can grow in 2027 assuming dislocation resolves, and about Spoilchild’s international plans. / A: CEO confirmed plans to return to growth for Il Makiage once the algorithmic drift is corrected via retraining, citing a ready pipeline of new products. For Spoilchild, he affirmed international expansion is underway due to strong demand and noted upcoming modern aid categories for next year.

Q: CFO was asked about seasonality assumptions in guidance and repeat revenue trends given the disruption. / A: She explained that while H1 is typically stronger, this year’s seasonality is distorted by testing-heavy acquisition efforts. However, repeat revenue remains strong (>100% 12-month rate), driving expectations for sequential improvement in H2 as acquisition pressure eases.

Q: CEO was asked about learnings from the remediation process and the importance of D2C data. / A: He stated the team gained deep insights into media buying algorithms and emphasized that maintaining a large D2C base is critical for preserving data ownership and competitive advantage while working closely with ad partners to fix the technical issue.

Q: CFO addressed why Q4 revenue guidance implies a steeper decline (-10-11%) than Q3 (-5%), and drivers of other revenue growth. / A: She attributed the Q4 slowdown to uncertainty rather than sandbagging, noting volatility in the Israeli market due to war impacts. She did not elaborate further on specific other revenue drivers beyond general business normalization.

Q: CEO discussed marketing strategy changes for Spoilchild/Methodic and future category investments. / A: He explained Spoilchild scales despite minor dislocation impacts. For Methodic, he highlighted success in prescription/non-prescription hyperpigmentation treatments and announced plans to enter longevity and metabolic health in 2027 with injectable therapies, leveraging a three-year-built growth engine.