Is ODDITY’s turnaround working?

ODDITY’s second quarter offered the first credible evidence that its 2026 disruption may be stabilizing—but not enough evidence to declare the turnaround complete. Revenue still fell 25% year over year, while gross margin and adjusted EBITDA remained far below last year. The encouraging signal was forward-looking: management expects the third-quarter revenue decline to narrow to approximately 5% as newer brands grow and the IL MAKIAGE advertising problem moderates.

Key Takeaways

• Second-quarter revenue was $181 million, down 25%, but landed at the favorable end of management’s guidance.
• Adjusted EBITDA reached $13 million, exceeding the prior $8 million to $10 million target.
• Management expects Q3 revenue to decline about 5%, a meaningful sequential improvement.
• The investment case still hinges on fixing IL MAKIAGE customer acquisition—not merely offsetting it with new brands.

What ODDITY reported

ODDITY generated $181 million of second-quarter revenue, compared with $241 million a year earlier. Gross profit declined to $124 million from $174 million, and gross margin compressed to 68.7% from 72.3%.

Profitability also fell sharply from last year. Net income was $13 million versus $49 million, while adjusted EBITDA declined to $13 million from $70 million. Diluted EPS came in at $0.24, compared with $0.79 a year ago.

Those comparisons are weak, but the quarter was better than the company’s reduced expectations. Revenue landed at the high end of guidance, and adjusted EBITDA surpassed the prior range. That distinction matters: a damaged growth story does not need perfect results to rerate—it needs results that stop getting worse.

The Q3 outlook is the most important number

Management expects third-quarter revenue to decline approximately 5% year over year and adjusted EBITDA of $18 million to $20 million. If delivered, that would represent a dramatic improvement from the 25% decline in Q2 and the pressure seen throughout the first half.

The recovery is expected to come from growth at SpoiledChild and METHODIQ plus a moderating impact from the IL MAKIAGE account disruption. SpoiledChild is on track to grow at least 35% in 2026 and approach $350 million in annual revenue. Management also says METHODIQ’s first-year revenue should exceed SpoiledChild’s first year.

The key question is whether these brands are creating a durable second growth engine or temporarily masking weakness in the original flagship business.

Why IL MAKIAGE remains the central risk

ODDITY attributes much of the slowdown to an advertising-algorithm dislocation at IL MAKIAGE. The company says it is working with its largest advertising partner to correct distorted signals and retrain the system.

That explanation may prove accurate, but investors should demand measurable evidence. Digital beauty economics depend on acquiring customers at attractive costs and converting them into repeat buyers. If the algorithm issue persists, ODDITY may have to accept slower growth, spend more heavily on acquisition, or depend increasingly on newer brands.

The best confirmation would be improving customer-acquisition efficiency alongside stable repeat revenue and recovering gross margin. Revenue growth alone would be less persuasive if it requires structurally higher marketing expense.

The balance sheet creates room to recover

ODDITY ended the quarter with $561 million in cash, cash equivalents and investments, plus $350 million of undrawn credit facilities. That liquidity gives management time to repair the core funnel and continue investing in newer platforms.

The company repurchased approximately $80 million of shares during Q2 and about $163 million year to date, reducing total ordinary shares outstanding by roughly 20%. It also retired $50 million of zero-coupon exchangeable notes for about $35 million.

Buybacks can enhance per-share value when a company has excess liquidity and the business stabilizes. They are less reassuring if operating deterioration continues. Investors should therefore evaluate repurchases alongside cash generation, not as a substitute for it.

What investors should watch next

• Q3 revenue: A decline near 5% would validate the sequential recovery signal.
• IL MAKIAGE efficiency: Watch for proof that customer-acquisition costs and advertising conversion are normalizing.
• Gross margin: Stabilization would suggest the recovery is improving in quality, not only volume.
• New-brand contribution: SpoiledChild and METHODIQ need to become durable growth engines.
• Cash deployment: Repurchases should not compromise investment flexibility.

The bottom line

ODDITY’s Q2 report was better than the headline 25% revenue decline suggests because results beat reduced expectations and the Q3 outlook points toward stabilization. But this remains a prove-it story. The stock’s durable upside depends on restoring IL MAKIAGE’s acquisition engine while converting newer brands into profitable scale. One improved forecast is encouraging; several quarters of improving customer economics would be convincing.