Oddity Tech Ltd. (ODD) Q3 2026 earnings review
Oddity beats its third-quarter plan, but fourth-quarter sales drop again
Oddity Tech, the online seller of IL MAKIAGE makeup and SpoiledChild skin care, beat its third-quarter targets, but its fourth-quarter plan steps backward. Third-quarter sales dipped 2% to $145 million, beating the 5% drop management had planned for as SpoiledChild grew fast. Finance chief Lindsay Drucker Mann lifted the full-year outlook slightly, yet set the fourth-quarter forecast at a 10% to 11% revenue decline.
| Net revenue | $145.0M -2.0% from a year ago (plan: -5%) |
|---|---|
| Cash operating profit (Adj. EBITDA) | $22.0M above $18–20M plan (-23.8% from a year ago) |
| Gross margin | 67.4% -4.2 percentage points from a year ago |
| Full-year revenue outlook | Raised 0.5 pts now -18.5% from a year ago; Q4 set at -10% to -11% |
⚖️ Verdict: ⚪ Neutral
The standing story is unchanged because the fourth-quarter outlook shows the advertising problem at IL MAKIAGE is still not fixed. Beating the third-quarter target reflects a seasonally quiet advertising period and SpoiledChild's rise to half of company sales, not a rebound at the flagship makeup brand. Meanwhile, gross margin dropped 4.2 percentage points and unsold inventory kept rising.
The question now is whether the spike in advertising costs is a temporary technical glitch that Oddity can solve for 2027 or a lasting rule change at its largest ad partner. If it is temporary, IL MAKIAGE will return to growth next year alongside SpoiledChild; if it is lasting, the flagship brand stays roughly half its old size while the group leans on riskier peptide launches. First-quarter 2027 revenue targets will settle it.
🐂 Bull Case
SpoiledChild Now Carries Half the Company
Oddity builds online beauty and wellness brands, and its newer hair and skin brand SpoiledChild is now carrying the group. The company said SpoiledChild posted double-digit sales growth this quarter and stays "on track to grow at least 35% compared to 2025 and approach $350 million of net revenue in 2026". Its third brand, METHODIQ, an online dermatology service launched late last year, also grew from the second quarter.
Management expects METHODIQ to finish its first year "ahead of SpoiledChild’s first year", which brought in $25 million. Because the full-year plan points to about $660 million in total sales by our math, SpoiledChild alone now makes up slightly more than half of the business, up from roughly 31% last year. That scale proves the US-based group can build a second major brand even while its older makeup line struggles.
What to watch: Fourth-quarter brand revenue disclosures in the full-year report. If SpoiledChild reaches $350 million, its expansion will outpace the shrinkage at the older makeup brand as comparisons ease next year.
Share Buybacks Cushioned the EPS Drop, Then Paused
Heavy share buybacks from the first half of the year protected per-share profit this quarter, though that spending also shrank the company's net cash cushion. Oddity spent $163 million retiring shares during the first six months of 2026, which cut its third-quarter diluted share count by 23.0% from a year ago to 48.2 million.
Because the share count fell so sharply, profit per share excluding one-offs dipped only 7.5% to $0.37, even though net income excluding one-offs dropped 29.0% to $17.7 million. During the third quarter, the online beauty retailer paused open-market purchases and withheld just $0.5 million of stock for employee taxes, leaving $86 million on its buyback plan and $561 million in cash against roughly $550 million in debt principal.
What to watch: Open-market share repurchases in the fourth quarter. Resuming buybacks would show management is confident in cash generation, whereas keeping them paused preserves cash against its 2030 debt.
🐻 Bear Case
The Fourth-Quarter Plan Points Backward
Since late last year, an algorithm change at Oddity's largest advertising partner has driven up customer acquisition costs for IL MAKIAGE, its flagship makeup brand. Finance chief Lindsay Drucker Mann called this quarter's 2.0% sales dip "better than our outlook and a substantial sequential improvement from the second quarter", when sales fell 25.0%. Chief executive Oran Holtzman added that "we are hopeful we are on a path to normalization".
- Third-quarter net revenue: $145.0 million, down 2.0% from a year ago against a -5% plan
- Fourth-quarter revenue outlook: down 10% to 11% from a year ago, or about $137 million by our math
- Implied non-SpoiledChild full-year sales: about $310 million by our math, down roughly 45% from 2025
The fourth-quarter forecast cuts against the story of a steady recovery. The third quarter always brings smaller advertising budgets, which naturally hid the high cost of buying new customers, and the fourth-quarter plan shows the revenue drop widening back to double digits while cash operating profit falls to $4–6 million.
What to watch: First-quarter 2027 revenue guidance when fourth-quarter results arrive. Because early 2027 compares against this year's steep drop, Oddity needs double-digit growth to prove the ad fix worked.
Higher Product Costs Cut Gross Margin
Even with third-quarter sales nearly matching last year's level, Oddity earned less on every dollar of cosmetics and skin care it sold. Gross margin fell 4.2 percentage points from a year ago to 67.4%, its lowest third-quarter reading in the past three years, while GAAP operating margin dropped 4.8 percentage points to 7.0%.
The cost of making and shipping products rose from 28.4% of revenue a year ago to 32.6% this quarter, while advertising and overhead edged up 0.6 percentage points to 60.4% of sales. At the same time, unsold stock on the balance sheet climbed to $157.5 million, because IL MAKIAGE bought inventory before its ad costs jumped.
What to watch: Fourth-quarter gross margin alongside inventory balances. Another 4-point margin drop while inventory stays above $150 million would show that excess makeup stock or newer brands carry weaker margins.
Peptide Expansion Brings New Regulatory Risk
Holtzman wants to return the group to growth next year, and a centerpiece of that effort is expanding METHODIQ beyond skin care. Oddity announced "the launch of longevity and metabolic health with prescription injectable and peptide therapies planned for 2027".
To flag the risks of that launch, the company added new warnings to its release. It noted that federal rules allowing certain compounded peptides are "non-binding" and may be withdrawn, and that compounded peptide products "have not been evaluated by, the FDA for safety or effectiveness". Entering unapproved injectable drugs raises legal and safety risks that cosmetics never carried.
What to watch: Any change to federal enforcement policy on compounded peptides before the 2027 launch. A stricter rule would block METHODIQ from selling compounded injectables before the category generates revenue.
Risks This Quarter Didn't Answer
Two standing concerns about customer acquisition and retention received no updated numbers in the third-quarter earnings release, though management often discusses them on the conference call.
- IL MAKIAGE customer acquisition cost index: last reported at 2.8 through May (up 83% from a year earlier), and not updated in the release.
- First-order versus repeat-order sales growth: fell 40% and 20% in the second quarter as lost early-year shoppers hurt repeat orders, and not yet readable for the third quarter.
💲 Other KPIs
Unsold stock rose again, climbing 35.7% from a year ago and 3.5% from the second quarter. Inventories have grown for four straight quarters even as total revenue shrank, tying up $22.3 million of operating cash over the first nine months of 2026.
Turned positive in the third quarter by our math, lifting nine-month free cash flow to $2.5 million from negative $7.5 million at mid-year. That reverses two quarters of cash burn, though nine-month cash generation remains far below the $89.6 million generated in the same period last year.
Cash and marketable securities held steady from $561.2 million at the end of June after dropping by $214.8 million in the first half due to share and debt buybacks. The balance sits just $10.7 million above the roughly $550 million face value of Oddity's exchangeable notes due 2030, alongside $350 million in undrawn credit lines.
🔮 Guidance
Raised. Drucker Mann lifted the full-year revenue forecast by half a percentage point, which puts 2026 sales near $660 million by our math. That roughly $4 million increase passes through the third-quarter beat while leaving the fourth-quarter outlook unchanged from what the prior full-year plan implied.
Raised. The online beauty company added $2 million to both ends of its full-year cash operating profit target, putting the middle of the range at $33 million, down 79.8% from last year's $163.3 million. Because third-quarter profit beat the middle of its own plan by $3 million, the full-year raise holds back $1 million for fourth-quarter spending.
New. Management expects fourth-quarter sales to fall about 10.5% at the middle of the range, to roughly $136.7 million by our math. That marks a sharp step backward from the 2.0% decline in the third quarter and lines up with the $137 million fourth-quarter figure implied by the prior full-year plan.
New. The plan calls for $5 million of cash operating profit at the middle of the range, down 60.0% from $12.5 million in the fourth quarter of 2025. That trims the implied fourth-quarter range of $4.2–8.2 million from three months ago as the group budgets for algorithm testing.
❓ Key Questions
Where is the IL MAKIAGE customer acquisition cost index today?
In the first quarter, management called its partner acquisition cost index the leading indicator of recovery, showing it at 2.8 through May. Without an updated reading, investors cannot tell if ad costs are actually falling.
How did first-time and repeat orders perform in Q3?
First-time orders fell 40% and repeat orders dropped 20% in the second quarter. Knowing whether repeat orders stabilized in the third quarter is essential to judging how much lost early-year traffic still weighs on sales.
Why did gross margin drop 4.2 percentage points?
Gross margin fell to 67.4% even though revenue nearly matched last year's third quarter and marketing is in SG&A. Management has not said whether inventory write-downs at IL MAKIAGE or lower margins at newer brands caused the drop.
Which peptides will METHODIQ sell under current FDA rules?
Oddity plans to launch prescription injectable and peptide therapies in 2027 while warning that federal enforcement discretion on compounded peptides is non-binding. Investors need to know how much of the 2027 plan relies on unapproved compounded drugs.