Oddity Tech Ltd. (ODD) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary reveals strong financial performance with revenue and EBITDA growth, alongside optimistic guidance. The Q&A section highlights strategic growth plans, particularly in international markets and new brand launches, despite some vagueness in management's responses. The company's raised gross margin outlook and successful EPS exceeding guidance further bolster the positive sentiment. The market cap suggests a moderate reaction, leading to a predicted stock price increase of 2% to 8% over the next two weeks.

Key Financial Performance

Revenue for the first half of 2025 $509 million, a 26% increase year-over-year. This growth was attributed to strong performance across brands and markets.

Adjusted EBITDA for the first half of 2025 $122 million, surpassing the full-year 2023 figure. This reflects improved operational efficiency and profitability.

Free Cash Flow for the first half of 2025 $99 million, exceeding the full-year 2023 figure. This indicates strong cash generation capabilities.

Q2 2025 Net Revenue $241 million, a 25% increase year-over-year. Growth was driven by double-digit online growth at IL MAKIAGE and SpoiledChild.

Q2 2025 Gross Margin 72.3%, a 10 basis point increase year-over-year. This was due to better mix and manageable tariff impacts.

Q2 2025 Adjusted EBITDA $70 million, with a margin of 28.8%, a 350 basis point compression due to planned growth investments.

Q2 2025 Adjusted Diluted EPS $0.92, exceeding guidance of $0.85 to $0.89, reflecting strong operational performance.

IL MAKIAGE International Revenue Contribution in 2024 15% of ODDITY's net revenue, with strong growth potential compared to competitors' 70% international revenue contribution.

SpoiledChild Revenue for 2025 On track to cross $200 million, reflecting strong growth since its 2022 launch.

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Operating Highlights

Brand 3 Launch: ODDITY is set to launch Brand 3 in Q4 2025, marking its entry into the medical-grade dermatology space. This brand will offer OTC and prescription products, targeting skin issues like acne and eczema. The approach includes personalized treatments, online diagnosis, and progress tracking.

Brand 4 Development: Brand 4 is scheduled for launch in 2026, with proprietary molecules and delivery systems under development at ODDITY Labs.

International Expansion: International sales represented 15% of ODDITY's 2024 revenue, with strong performance in markets like the U.K. and Australia. The company is testing new markets like France and aims to increase international revenue share closer to competitors' 70%.

Online Channel Growth: ODDITY continues to invest in online channels, which are expected to become the largest in the beauty industry. Double-digit online growth was reported for IL MAKIAGE and SpoiledChild.

Revenue Growth: Revenue grew 26% in the first half of 2025 to $509 million, with Q2 revenue up 25% to $241 million. Adjusted EBITDA for the first half reached $122 million.

Cash Flow and Investments: Generated $99 million in free cash flow in the first half of 2025. The company issued a $600 million convertible note, increasing its cash position to $815 million.

Focus on Technology and Innovation: ODDITY Labs is developing proprietary molecules and delivery systems to create high-efficacy products. Investments in pharma-grade technology aim to discover breakthrough solutions.

Shift to Healthcare: The launch of Brand 3 signifies a strategic shift into healthcare, leveraging technology to address unmet needs in dermatology with an online model.

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Risk or Challenges

Tariffs impact on gross margin: The company experienced some initial flow-through of tariffs in Q2 2025, which are expected to be a less than 100 basis point headwind to gross margin this year and similarly manageable in 2026.

Average order value (AOV) decline: Average order value was down around 1% in Q2 2025, impacted by mix, including faster growth in international markets and an increase in the mix of repeat sales, both of which carry lower AOV.

Front-loaded investments in 2026: Planned front-loaded investments in the first half of 2026 could equate to a 700 basis point drag on first half EBITDA margin, with most of the impact weighted to Q1.

International market expansion risks: While international markets represent a significant growth opportunity, they also pose risks such as increased acquisition spend and the need for strategic prioritization to achieve meaningful revenue contributions.

Brand 3 launch execution: The launch of Brand 3 in Q4 2025, which marks the company's entry into the medical-grade dermatology space, carries execution risks, including the need to meet consumer expectations and effectively compete in a new market.

Economic uncertainties: General economic conditions could impact consumer spending behavior, particularly in the beauty and healthcare sectors, which are sensitive to discretionary income levels.

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Guidance & Outlook

Revenue Growth: The company expects full-year 2025 net revenue to be between $799 million and $804 million, representing around 23% to 24% year-over-year growth. For 2026, financial performance is expected to align with the long-term algorithm of 20% revenue growth.

Adjusted EBITDA Margin: The adjusted EBITDA margin for 2025 is expected to be between $160 million and $162 million. For 2026, the adjusted EBITDA margin is projected to remain at 20%, consistent with the long-term algorithm.

Brand 3 Launch: Brand 3, focusing on medical-grade dermatology products, is on track for a Q4 2025 launch. The brand will target dermatology issues like acne and eczema with personalized, online-based solutions. No revenue contribution from Brand 3 is included in the 2025 outlook.

Brand 4 Launch: Brand 4 is scheduled for launch in 2026, with further details to be provided later.

International Expansion: The company is increasing focus on international markets, which represented 15% of 2024 revenue, with plans to scale further in 2025 and beyond. IL MAKIAGE is already a leading online beauty brand in markets like the U.K. and Australia.

Technology and Innovation: ODDITY Labs is developing proprietary molecules and delivery systems for Brands 3 and 4, aiming to create high-efficacy products. Investments in technology and personalization are expected to drive future growth.

Q3 2025 Outlook: Net revenue growth for Q3 2025 is expected to be between 21% and 23% year-over-year.

2026 Investment Strategy: Planned front-loaded investments in the first half of 2026 could result in a 700 basis point drag on first-half EBITDA margin, offset by lower relative spending in the second half, resulting in a neutral impact on the full-year adjusted EBITDA margin.

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Shareholder Return Plan

Buyback Authorization: The company has $103 million remaining on its buyback authorization with no share repurchases year-to-date.

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Key Q&A

Q:What is driving the sequential compression in gross margin for Q3?

A:The gross margin compression is due to seasonality in the back half of the year, lower gross margin profiles for repeat business, and less leverage on fixed COGS due to smaller revenue dollars in Q3 and Q4. Additionally, the company manages to contribution margin rather than gross margin, giving teams flexibility to focus on long-term value.

Q:Can the company grow 20% next year without any contribution from Brand 3?

A:Yes, the company can grow 20% next year without any contribution from Brand 3. Growth will be driven by existing brands IL MAKIAGE and SpoiledChild, which are on track to achieve significant revenue milestones.

Q:Will the company constrain growth on IL MAKIAGE and SpoiledChild to manage the business to 20% growth?

A:Yes, the company will constrain growth to ensure long-term predictable growth at 20% revenue growth and 20% adjusted EBITDA margins. This approach avoids pulling growth forward unnecessarily.

Q:Is there a soft launch for Brand 3 in Q3?

A:Yes, there will be a soft launch in Q3 involving trial runs and smaller acquisition spend for testing. The official launch with significant spending will occur in Q4 and Q1 next year.

Q:What are the investments being made for Brand 3 and Brand 4, and when will returns be seen?

A:Investments are being made in new brands, ODDITY Labs, and technology. Returns are expected to be significant in the long term, as seen with SpoiledChild, which grew to $200 million in revenue within three years of launch.

Q:What are the drivers of international growth?

A:International growth is driven by deeper penetration in existing markets like the U.K. and Australia, as well as expansion into new markets like France, Italy, and Spain. Sales outside the U.S. grew over 40% in the first half, with $85 million in revenue.

Q:What is the repeat rate performance?

A:Repeat rates remain strong, increasing as a percentage of the business year-over-year. 12-month repeat cohorts are performing well, with over 100% repeat rates for both brands.

Q:What is the go-to-market strategy for Brand 3?

A:The go-to-market strategy for Brand 3 involves leveraging existing user base, technology, and vision technology for personalized treatments. The approach is similar to previous brands but includes new infrastructure for pharmacy and third-party collaborations.

Q:What does Brand 3 entail, and what are the long-term revenue opportunities?

A:Brand 3 is a telehealth platform with medical-grade products, starting with dermatology. It includes personalized treatments, a mobile app for compliance, and leveraging existing user base. Long-term revenue opportunities include OTC and Rx products, new molecules from ODDITY Labs, and potential expansion into other categories.

Q:What are the opportunities for Brand 3 in addressing acute conditions?

A:Brand 3 will initially focus on acne and hyperpigmentation, with plans to expand into eczema and other categories. The platform aims to address unmet needs in dermatology with personalized treatments and new products.

Q:Review of Unclear Management Responses

A:Management avoided directly answering questions about the specific timeline for returns on investments in Brand 3 and Brand 4, as well as the exact metrics for success in international markets. Responses were vague and lacked detailed data.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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