ODDITY Tech Ltd. (ODD) shares surged Wednesday after the beauty and wellness company delivered a second-quarter earnings beat and issued guidance that came in above what Wall Street was expecting. But there's more to this move than just the numbers.

With roughly 32% of the public float sold short, there was a lot of bearish positioning stacked against the stock. When good news hits, those bears have to cover, and that can turn a solid rally into a rocket. That seems to be exactly what happened here.

The company reported adjusted earnings of 20 cents per share, beating the consensus estimate of 16 cents. Sales came in at $180.52 million, down 25% year over year, but still ahead of the $177.60 million analysts had modeled.

That revenue drop is mostly tied to IL MAKIAGE, which took a hit after an advertising account disruption with the company's largest ad partner.

Earnings Snapshot

First-order net revenue fell about 40% year over year, while repeat-order net revenue declined about 20%. Average order value slipped about 8%, driven by lower IL MAKIAGE average order value, fewer high-value first orders, and a product mix shift away from that brand.

Gross margin narrowed 360 basis points to 68.7% from 72.3% a year earlier, partly due to that lower average order value. Adjusted EBITDA came in at $13 million, topping the company's own guidance of $8 million to $10 million. But profitability was pressured by higher customer acquisition costs for IL MAKIAGE, fixed-cost deleverage, and increased spending to accelerate SpoiledChild's growth.

ODDITY ended the quarter with $561 million in cash, cash equivalents, and investments. Its $350 million credit facilities remained undrawn.

The company also kept buying back stock, repurchasing 5.6 million shares for $80 million during the quarter. Year-to-date, it has bought back 11.7 million shares for $163 million, reducing ordinary shares outstanding by about 20%. There's still about $87 million left under its $200 million repurchase authorization.

Business Performance

SpoiledChild continues to be a bright spot. It's on track to grow at least 35% in 2026 and approach $350 million in net revenue, hitting that milestone more than a year faster than IL MAKIAGE did. Its 12-month net revenue repeat rates remain well above 100%.

Metodic, which launched a few months ago, is also showing early momentum. ODDITY expects its first-year revenue to exceed SpoiledChild's first-year revenue. Management says Metodic's hyperpigmentation products are showing stronger customer satisfaction and retention signals. Higher acquisition costs are expected to be offset by average order value, retention, and resulting paybacks.

The company has more than 70 million users on its direct-to-consumer platform, giving it a wealth of first-party data to spot consumer demand and product opportunities. ODDITY Labs is also working on molecules targeting hyperpigmentation and aging, with early in-vitro results showing potential to boost collagen synthesis and reduce aging markers.

Guidance Points To Sequential Improvement

Looking ahead, ODDITY expects third-quarter sales of $140.51 million, above the $122.64 million estimate. Revenue is expected to decline about 5% year over year, a significant sequential improvement from the first half. Management believes the worst of the acquisition-driven revenue pressure is behind them.

For fiscal 2026, the company expects sales of $655.97 million, above the $628.06 million analyst estimate. Revenue is projected to decline about 19% year over year, primarily reflecting the first-half weakness.

Price Action

ODDITY Tech shares were up 25.34% at $16.32 at the time of publication on Wednesday, according to market data.