Contradictions Emerge in Brand 3 Launch and Gross Margin Outlook During 2025 Q2 Earnings Call

Date of Call: August 5, 2025

Financials Results

• Revenue: $241M in Q2, up 25% YOY; H1 2025 revenue $509M, up 26% YOY; full-year 2025 guidance $799M–$804M, +23%–24% YOY
• EPS: $0.92 adjusted diluted EPS in Q2 (above guidance $0.85–$0.89); full-year adjusted diluted EPS guidance $2.06–$2.09; adjusted EPS excludes approximately $10M of share‑based compensation
• Gross Margin: 72.3% in Q2, expanded 10 basis points YOY (beat guidance of 70.5%); full-year 2025 gross margin guidance 71% (includes expected tariff impact, <100 bps headwind)

Guidance:

• Full-year 2025 net revenue expected $799M–$804M (~23%–24% YOY)
• Full-year 2025 gross margin expected ~71% (includes tariffs)
• Full-year 2025 adjusted EBITDA expected $160M–$162M
• Full-year 2025 adjusted diluted EPS expected $2.06–$2.09 (assumes no buybacks)
• Q3 2025 revenue growth expected 21%–23% YOY
• Brand 3 revenue is not included in 2025 guidance
• 2026 expected to align with long-term algorithm: ~20% revenue growth and ~20% adjusted EBITDA margin; H1 2026 front‑loaded investments could drag H1 EBITDA margin by ~700 bps (most in Q1), offset by lower spending in H2

Business Commentary:

* Strong Financial Performance: - ODDITY's revenue grew 26% to $509 million in the first half of 2025, surpassing the total revenue for the entire year of 2023, the year of its IPO. - The growth was driven by strong demand for high-efficacy products and the expansion of online sales, which are key growth pillars for the company.

• International Market Expansion:
• Sales outside the U.S. grew over 40% in the first half of 2025, contributing around $85 million, with $75 million from established markets and $10 million from testing new markets.
• This expansion is part of the company's strategy to increase focus on international markets, similar to the U.S. market and leveraging its technology platform for international growth.

• Brand 3 and Innovative Offerings:
• Brand 3, launching in Q4 of 2025, is expected to be an innovative medical-grade dermatology platform, unlocking a new market for ODDITY.

• Its offerings are designed to provide personalized treatments, leveraging advanced computer-vision technology and doctor-developed protocols, aiming to deliver highly efficacious tailored treatments.

• Gross Margin and Investments:

• Gross margin expanded by 10 basis points year-over-year, reaching 72.3%, despite initial flow-through of tariffs.
• Investments in long-term growth initiatives such as Brand 3, Brand 4, ODDITY Labs, and technology are expected to drive future growth, with a commitment to delivering 20% revenue growth and 20% adjusted EBITDA margin consistently.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong operating momentum: "grew revenue 26% to $509 million" in H1 and Q2 revenue +25% to $241M; beat quarterly targets on revenue, profit and EPS for the ninth quarter since IPO; guided to another 'outstanding year' while reiterating long‑term 20% revenue / 20% adjusted EBITDA algorithm.

Q&A:

• Question from Youssef Houssaini Squali (Truist Securities): So maybe just at a high level, maybe on the gross margin for Q3, Lindsay, the guide, it came in slightly below consensus expectations. Can you maybe unpack that a little bit? What's driving the sequential compression there? Is it volume, mix, investment associated with Brand 3, et cetera? And just to clarify, in your prepared remarks, I think you just said something to the effect that the 20% -- you believe you can grow 20% next year even without any contribution from Brand 3. Can you just confirm that?
  Response: Gross-margin compression reflects seasonality and a higher mix of lower‑margin repeat sales plus less leverage on fixed COGS in Q3/Q4; tariffs are a manageable headwind, and Brand 3 is not required to meet 2025 or 2026 (20%/20%) targets.

• Question from Lauren Rae Lieberman (Barclays): One was just a follow up, Lindsay, on the end of your answer to that last question that you wouldn't up your guidance or commitments if Brand 3 comes through strongly and will be incremental. Should we take that as to mean that you'll kind of pull back and constrain the growth on IL MAKIAGE and SpoiledChild to try to manage the business in '26 and beyond to something as close to that 20% as possible? ... And then the other thing, which is a shorter term, I think previously, you talked about a soft launch for Brand 3 in the third quarter, and now it's just full committed launch in Q4. Is there any soft launch activity in Q3? And if that's a shift in the launch plan, how come?
  Response: They will actively manage and constrain growth levers to sustain the long‑term 20% revenue / 20% adjusted EBITDA algorithm; Brand 3 will run tests/soft launches in Q3 but the full commercial launch and material spend is planned for Q4 (with a big push into Q1).

• Question from Anna Jeanne Lizzul (BofA Securities): I was wondering if you could just elaborate a bit more on your investment in the business here with the launch of Brand 3 later this year and then Brand 4 next year? And then when do you expect we'll start seeing some returns here on just the investments with those launches?
  Response: Company is front‑loading investment across three pillars—new brands (Brand 3/4), ODDITY Labs (~70 scientists) and technology—with multi‑year payback expectations; prior example: ~$20–$25M seed spend on SpoiledChild grew to ~$200M revenue in three years.

• Question from Andrew M. Boone (Citizens JMP Securities): I wanted to ask about International and just the drivers of growth going forward there. Can you guys just talk about whether that includes new markets, deeper penetration or anything else we should be thinking about as we think through the international opportunity? And then, Lindsay, I want to go back to just a reoccurring theme of just repeat rates. Is there anything you guys can share either on cohorts, repeat rates to help us better understand how kind of the existing customers are progressing on the platform?
  Response: International growth is driven by deeper penetration in established markets plus expansion into new test markets; H1 international sales grew >40% to ~$85M (≈$75M from established markets); 12‑month repeat cohorts remain strong, >100% for both brands.

• Question from Mark Stephen F. Mahaney (Evercore ISI): I just wanted to ask about the Brand 3 go-to-market strategy. I think given the type of offering, it's probably going to require a different go-to-market strategy than what you've had with the first 2 brands. Could you just talk about your ability to execute well against that? How different the planning is? How do you mitigate some of the operational risk involved?
  Response: GTM still leverages the existing user base and tech stack, but differentiates through deep personalization (25+ customer cohorts and vision tech driving materially higher satisfaction); the primary new operational risk is pharmacy/logistics infrastructure, which they've built into the plan.

• Question from Dara Warren Mohsenian (Morgan Stanley): Just on Brand 3, can you just take a step back and give us an update on exactly what the brand sort of entails longer term from a consumer standpoint? Obviously, there's the product itself. You also mentioned monitoring. How does the professional recommendation fit in also potentially? And just basically, how we think about revenue from Brand 3? Is it essentially mostly the product itself? Or are you thinking there's substantial opportunity around charging for monitoring or other revenue streams just given commercialization potential in the derm area goes well beyond the product potentially unlike traditional beauty products. So just what's your approach there? And how do you think about the long-term revenue streams?
  Response: Brand 3 is a telehealth platform selling OTC and prescription products online, supported by a compliance/coaching mobile app and doctor protocols; primary revenue is product sales, with the platform and monitoring aimed at driving adherence and lifetime value rather than initial standalone fees.

• Question from Scott Anthony Schoenhaus (KeyBanc Capital Markets): Oran, as a health care technology analyst, I think this Brand 3 launch is a really exciting expansion opportunity... I guess maybe talk about the opportunities with more acute conditions. I think you mentioned eczema. This could be an entirely different platform, bringing in a whole new customer set and people coming to your platform with really severe skin conditions. So kind of just walk me through the trajectory of how you view Brand 3 and the opportunities there as you emerge as a health care technology company.
  Response: Initial launch will focus on acne and hyperpigmentation where scale and improvements are clearest; eczema and other conditions are ready but lower prevalence—company plans to expand into body products and additional categories over time, with tests showing encouraging (~20%–25%) improvements in target problems.

Contradiction Point 1

Brand 3 Launch and Impact on Financial Outlook

It involves differing statements on the expected impact of Brand 3 on financial performance, which could affect investor expectations and company strategy.

Will you constrain IL MAKIAGE and SpoiledChild's growth if Brand 3 performs strongly, and is there a soft launch for Brand 3 in Q3? - Lauren Rae Lieberman (Barclays)

2025Q2: Brand 3 is not baked in due to minimal expected impact. - Oran Holtzman(CEO)

Can you elaborate on Brand 3's launch and your level of excitement about it? - Cory Carpenter (JPMorgan)

2025Q1: Brand 3 is set for Q3 soft launch and Q4 full launch, with the widest range of products to date. I'm excited due to strong test results and market demand. - Oran Holtzman(CEO)

Contradiction Point 2

Gross Margin Flexibility and Strategic Focus

It highlights differences in the company's approach to gross margins and strategic focus, which could influence financial planning and investor perceptions.

Can you explain the sequential decline in gross margin for Q3 and confirm if Brand 3 is included in the 2025 outlook? - Youssef Houssaini Squali (Truist Securities)

2025Q2: Gross margin flexibility is given to teams to optimize LTV. Seasonality in Q3 and Q4 affects gross margin due to repeat business and fixed COGS. - Lindsay Drucker Mann(CFO)

What factors are driving gross margin expansion, and what future margin improvements are possible? - Mark Mahaney (Evercore ISI)

2025Q1: Gross margin is not a primary metric, but cost efficiencies contributed to the rise. Focus is on DC margin to optimize for product mix. Long-term target is high 60s for gross margin but maintaining 20%+ adjusted EBITDA margin. - Lindsay Drucker Mann(CFO)

Contradiction Point 3

Impact of Brand 3 on 2025 Outlook

It involves the inclusion or exclusion of Brand 3's impact on the 2025 financial outlook, which directly affects investor expectations and strategic planning.

Can you explain the sequential decline in gross margin for Q3 and clarify whether Brand 3 is included in your 2025 outlook? - Youssef Houssaini Squali (Truist Securities)

2025Q2: Brand 3 is not included in 2025 outlook. - Lindsay Drucker Mann(CFO)

What are the key product milestones for Brand 3, and how are growth investments affecting underlying profitability? - Andrew M. Boone (Citizens)

2024Q4: Brand 3 is in our 2025 outlook. - Lindsay Drucker Mann(CFO)

Contradiction Point 4

Gross Margin Flexibility and Seasonality

It involves the explanation of gross margin trends and flexibility, which are crucial for understanding the company's financial performance and strategic decisions.

Can you explain the sequential decline in Q3 gross margin and confirm if Brand 3 is included in the 2025 outlook? - Youssef Houssaini Squali (Truist Securities)

2025Q2: Gross margin flexibility is given to teams to optimize LTV. Seasonality in Q3 and Q4 affects gross margin due to repeat business and fixed COGS. - Lindsay Drucker Mann(CFO)

Will Q4 revenue from Blackwell be additive, and what's the expected exit rate for gross margins? - Stacy Rasgon (Bernstein Research)

2024Q4: We expect Q3 gross margin to be around 75%. And for the year, we anticipate gross margin for the year in the mid-70s. - Lindsay Drucker Mann(CFO)

Contradiction Point 5

Brand 3 Launch Timeline

It involves a discrepancy in the timeline for the launch of Brand 3, which could impact the company's strategic planning and investor expectations.

好的，我现在需要处理用户提供的这个任务。用户希望我作为专业的金融文章作者，总结并精简来自美股上市公司财报电话会议的问答环节的问题。具体来说，用户给的例子是：“Will you constrain IL MAKIAGE and SpoiledChild growth if Brand 3 performs strongly, and is there a soft launch for Brand 3 in Q3?”，然后需要简化成更简洁、精准的问题，同时保持原意，符合美式英语习惯，并且只输出问题，保留问号。首先，我需要分析原问题的结构。原问题有两个部分，用“and”连接。第一部分是询问如果Brand 3表现强劲，是否会限制IL MAKIAGE和SpoiledChild的增长。第二部分是关于Brand 3在第三季度是否有软启动。用户希望这两个部分都简化，但保持原意。接下来，我要确保简化后的问题没有冗长的表达，去掉不必要的装饰词。例如，“Will you constrain”可以保留，但可能需要调整结构。原问题中的“perform strongly”可以简化为“performs well”更符合常见表达。“soft launch”可能已经是常用术语，不需要修改。另外，注意品牌名称可能需要保留首字母大写，但用户给出的例子中IL MAKIAGE和SpoiledChild的首字母是否正确？可能用户希望保持原样，所以不需要修改。然后，检查是否有重复或冗余的部分。原问题中的两个部分都是关于Brand 3的，所以可能需要合并结构。例如，第一部分询问是否会限制其他品牌增长如果Brand 3表现好，第二部分是关于Brand 3的发布情况。可能需要将两个问题分开，但用户例子中的简化是合并成一个问句，用“and”连接，所以可能需要保持结构。现在，我需要确保问题符合美式英语习惯，比如使用正确的介词和结构。例如，“constrain growth”是正确的，而“soft launch”也是正确的术语。另外，时间表达“in Q3”是常见的缩写，无需修改。最后，确保输出只包含简化后的问题，没有额外的解释或格式。例如，用户提供的例子输出是：“Will you constrain IL MAKIAGE and SpoiledChild growth if Brand 3 performs strongly, and is there a soft launch for Brand 3 in Q3?”，但用户希望更简洁。可能的简化是将“perform strongly”改为“performs well”，但不确定是否必须这样做。或者是否可以将两个问题分开，但用户例子中是合并的，所以可能需要保持原结构。可能的简化步骤：1. 将“Will you constrain”保持不变。2. “IL MAKIAGE and SpoiledChild growth”可以保持，但可能需要确认是否有必要简化，但用户可能希望保留品牌名称。3. “perform strongly”改为“performs well”更自然。4. 第二个问题“is there a soft launch for Brand 3 in Q3?”可以保持，但可能可以更简洁，如“will Brand 3 have a soft launch in Q3?”，但用户例子中的简化是“is there a soft launch for Brand 3 in Q3?”，所以可能不需要进一步简化。因此，最终简化的问题应该是：“Will you constrain IL MAKIAGE and SpoiledChild growth if Brand 3 performs strongly, and is there a soft launch for Brand 3 in Q3?”，但用户可能希望更简洁，比如去掉“perform strongly”中的“strongly”？或者是否必须保留？需要确保不改变原意。原问题中的“perform strongly”可能指的是表现强劲，而“performs well”是更常见的表达，所以可能更合适。但用户给出的例子中的简化并没有改变“perform strongly”，所以可能应该保留。因此，最终简化的问题可能就是用户提供的例子中的版本，但用户可能希望进一步缩短。例如，是否可以将“constrain IL MAKIAGE and SpoiledChild growth”简化为“constrain growth of IL MAKIAGE and SpoiledChild”？或者保持原结构？可能用户希望尽可能保留原结构，所以最终的简化版本可能就是用户提供的例子中的版本，但需要检查是否更简洁。例如，原问题中的“Will you constrain IL MAKIAGE and SpoiledChild growth if Brand 3 performs strongly, and is there a soft launch for Brand 3 in Q3?”已经比较简洁，但可能可以去掉“Will you”中的“you”，但可能需要保留，因为是询问公司是否会采取行动。综上所述，用户提供的例子中的简化版本已经符合要求，但可能需要确认是否还有进一步的简化空间。例如，是否可以将“is there a soft launch”改为“will Brand 3 have a soft launch”？但用户可能希望保持原结构。因此，最终的简化问题可能就是用户给出的例子中的版本，或者更简化的版本，如：“Will - Lauren Rae Lieberman (Barclays)

2025Q2: Brand 3 is not baked in due to minimal expected impact. Soft launch involves testing and small-scale acquisition. Official launch starts in Q4 with increased spending. - Oran Holtzman(CEO)

Can you provide an update on LABS and molecule development, your expectations for commercialization in the remainder of this year and into next year, and any plans or updates regarding Brand 3 and 4? - Dara Mohsenian (Morgan Stanley)

2024Q1: Brand 3 launch is still on track for next year. - Oran Holtzman(CEO)