RealReal Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Company delivered a 14% year‐over‐year increase in GMV and revenue in Q2 with adjusted EBITDA of $6.8 M (4.1% margin), beating expectations and fueling a raised full‐year outlook.
  • Positive Sentiment: Recorded the highest number of new consignors ever and achieved double‐digit new seller growth for the second consecutive quarter, driving robust supply momentum into Q3.
  • Positive Sentiment: AI‐powered Athena now handles ~20% of item intake (targeting 30–40% by year‐end), expected to eliminate multiple dollars in per‐unit processing costs and boost operational efficiency.
  • Positive Sentiment: Strengthened the balance sheet with $109 M in cash, paid down $27 M of debt this quarter (and $80 M since 2024), extending the next debt maturity to 2028.
  • Positive Sentiment: Raised full‐year guidance to $2.03–2.045 B GMV (+11%), $667–674 M revenue (+12%) and $29–32 M adjusted EBITDA, underscoring confidence in sustained profitable growth.
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Earnings Conference Call
RealReal Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Speaker 5

Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to The RealReal second quarter 2025 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Caitlin Howe, Senior Vice President of Finance. Please go ahead.

Speaker 4

Thank you, operator. Joining me today to discuss our results for the period ended June 30, 2025, are Chief Executive Officer and President Rati Sahi Levesque and Chief Financial Officer Ajay Gopal. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.

Speaker 4

I would now like to turn the call over to Rati Sahi Levesque, Chief Executive Officer of The RealReal.

Speaker 1

Thank you, Caitlin. Good afternoon, everyone. I'm pleased to review our second quarter 2025 results. Q2 was a breakout quarter for The RealReal. We demonstrated progress while further validating the success of our strategic roadmap. Our strong Q2 performance was highlighted by 14% top-line growth, coupled with adjusted EBITDA above expectations. These results were driven by our clear strategic vision, innovative mindset, and unique position in a growing category. We are fundamentally changing the way people shop, and we are at a pivotal moment, not just as a company, but as a category leader. Before diving into this quarter's highlights, I'll take a moment to explain more about what changing the way people shop means to us. For the past 14 years, we've been ahead of the curve, making luxury resale desirable and accessible. Now, the circular economy is on the rise.

Speaker 1

We are not only leading the cultural shift in luxury resale, we are also helping to define it. Our operating and consumer expertise and growing brand affinity drive our market leadership. Our operating and consumer expertise is showcased in our world-class authentication, which has been the cornerstone from day one, creating trust with our customers. Our growth playbook centers on a scalable supply engine and helps us forge enduring relationships with our sellers. Our powerful brand attracts customers across the generational spectrum. With 53% of our customers being Millennial and Gen Z, all of these are underpinned by our data-driven intelligence. From authentication to pricing to our smart sales and smart prospects engines, we are leveraging AI to drive efficiency, scalability, and user engagement. Today's modern consumer is embracing the circular economy and approaching luxury resale as an option of first resort, not last.

Speaker 1

Our customers view their closet as an investment that retains value. In fact, 47% of our consumers consider the resale value of ready-to-wear items before making a purchase. The RealReal helps our sellers unlock that value and allows them to reinvest in other pieces, changing the way they shop on multiple fronts, prioritizing uniqueness, circularity, and financial savvy. This quarter's results affirm our strong brand affinity and cultural relevance, positioning us for sustained growth, improved profitability, and consistent cash flow. Looking at the numbers for Q2, we delivered record GMV at $504 million and record revenue of $165 million, both up 14% year over year. Adjusted EBITDA was $6.8 million, a 4.1% margin, which is a substantial beat versus expectations. This performance was underpinned by record new consigners, double-digit growth for the second quarter in a row, and our highest number of new consigners ever.

Speaker 1

We're encouraged by this trend, which has continued into Q3 as new consigner growth is a leading indicator for supply. Based on our second quarter results and the momentum we are seeing in the business, we are raising our full-year outlook. Through strong execution across our strategic pillars, unlocking supply through our growth playbook, driving operational efficiency, and obsessing over service, we are fueling top-line momentum and powering our profitability. The first pillar, our growth playbook, is focused on three key areas: sales, marketing, and stores. The new sales team compensation plan has been fully implemented and emphasizes retail value rather than simply unit targets. This means we are delivering even more of the goods and brands buyers want. The key areas of our growth playbook amplify one another to generate supply.

Speaker 1

Our seasoned sales team has been collaborating with our store team on experiential pop-up events, like a recent event in Newport Beach, which unlocked $800,000 of supply, and another at our Chicago store, which brought in $500,000 in a single day. These events generate excitement, brand energy, and incremental high-value supply. We're also making it simpler for those who already know and love us to engage on the platform. Our new re-consign program makes it easy for our existing repeat consigners to add items they've previously bought from us back to their belt list. This provides a seamless, convenient way to re-engage with our platform, creating a circular loop for luxury assets. Re-consign strengthens our supply and is performing well, increasing new opportunities and accelerating the flywheel on the supply innovation front. We're progressing with our dropship initiative.

Speaker 1

Building on the success in watches and handbags, we are expanding dropship to fine jewelry in Q3. In the back half of this year, we plan to partner with larger luxury good aggregators and international vendors. While still early days, we are confident in dropship and its ability to drive incremental supply. Within the second pillar of driving operational efficiency, AI and automation are central to our efficiency gains. Our new product intake process, Athena, is now touching approximately 20% of all units, and we are on track to reach 30% to 40% by end of year. Our next phase will focus on enabling listing automation, enhancing search through AI, and further reducing manual processes. Through our AI and automation efforts, we are increasing efficiency and accuracy, reducing processing time, and we are on track to cut multiple dollars from our processing cost per unit over the medium term.

Speaker 1

Authentication is a differentiator that sets us apart. We set the industry standard for luxury goods authentication, and we continue to raise the bar. We actively collaborate with law enforcement and government agencies to address the issue of counterfeiting within luxury. Since our inception, we've kept over one quarter of a million fakes off the market. With proprietary technology like Vision Shield and now Athena, we are the definitive authority on what is real as we combine our extensive data, AI capabilities, and authentication expertise. Going forward, we believe Athena will continue to elevate our authentication process, in particular driving speed and efficiency while reinforcing the rigorous accuracy that defines our approach. Touching briefly on our third strategic pillar, obsessing over service, innovation is key as we elevate both the seller and buyer journeys on our platform.

Speaker 1

During Q2, we made a number of enhancements to our consigner page, all aimed at improving transparency in the consignment process and reinforcing trust with our sellers. Furthermore, in July, we launched a new price history feed, which is currently in a phased rollout. This provides consigners with simple, timely, and actionable insights to maximize their earnings. We are also building toward an extension of our platform called My Closet, a digital catalog of luxury items, allowing sellers to keep up on market insights and luxury managers to give proactive consignment recommendations. On the buyer side, we are working to elevate the shopping journey. In the coming quarters, we look forward to releasing features like visual and conversational search powered by AI to make it effortless for buyers to discover items they love.

Speaker 1

Our relentless focus on innovation will help us continue to meet and anticipate the evolving needs of our discerning customers. In closing, there is a rising tide in luxury resale that we've helped to pioneer. Now we're capitalizing on it and accelerating it. Resale is the smart choice for a luxury-minded consumer, and price increases in the primary market due to tariffs or other factors make our value proposition even more compelling. Our business is fueled by the vast pool of luxury items currently sitting in domestic closets, a large and growing total addressable market of over $200 billion that our growth playbook is designed to effectively tap into. Our disciplined approach to operational execution and unlocking supply, driving efficiency, and obsessing over service creates a powerful flywheel that fuels our growth. We lead with vision, authenticity, and a relentless commitment to excellence.

Speaker 1

The market is ready, the customer is ready, and we are more ready than ever to embrace the moment and define the next era of luxury resale. With that, I'll turn the call over to Ajay.

Operator

Thank you, Ravi. Good afternoon, everyone. I am pleased to report our financial results for Q2 2025, which demonstrate the disciplined execution and the effectiveness of our strategy to drive profitable growth. This past quarter, we delivered our highest ever quarterly GMV, revenue, and new consigners. Our results reflect strong performance across the board and validate the strategic investments we are making, positioning us for continued momentum in both growth and efficiency. Now, turning to our detailed second quarter results, beginning with the top line. Q2 GMV of $504 million increased 14% compared to last year. This growth was driven primarily by healthy supply, which led to strong growth in units and to a lesser extent from mixing into higher value items. Our active buyer base also expanded, increasing 6% on a trailing 12-month basis to exceed 1 million active buyers.

Operator

Q2 revenue of $165 million increased 14% year over year. Consignment revenue grew 14%, while direct revenue increased 23% compared to Q2 of 2024 and represented 12% of total revenue in the quarter. Continuing with our second quarter results, second quarter gross profit of $123 million increased 14% year over year. Gross margin was 74.3% in the quarter, an increase of 20 basis points compared to the prior year. In the second quarter, consignment gross margin was 89.3%, an improvement of 93 basis points year over year. Direct gross margin was 16.2% in the second quarter, within our previously communicated range of 15% to 25%. Direct gross margin fluctuates quarterly, largely based on the category mix of products sold. For instance, in a quarter when we sell more watches at high price points, direct gross margin may be lower than in a quarter with a higher mix of handbags.

Operator

Overall, we are pleased with the stability and continued improvements in total gross margin. Second quarter operating expenses of $133 million improved 690 basis points year over year as a percent of revenue. Excluding stock-based compensation, operating expenses leveraged by 660 basis points, driven by productivity from our sales team, leverage on our fixed costs, and gains from AI and automation in our authentication center operations. Second quarter adjusted EBITDA of $6.8 million, or 4.1% of total revenue, increased $8.6 million versus the prior year. Adjusted EBITDA margins increased 530 basis points year over year. Year to date, adjusted EBITDA margin of 3.4% increased 475 basis points versus prior year, primarily due to operating expense leverage. We are pleased with the progress we're making in our productivity efforts and expect operating expenses to continue to be a source of leverage moving forward.

Operator

We are encouraged by our continued progress towards achieving sustained positive free cash flow and strengthening our balance sheet. We ended the quarter with $109 million in cash, cash equivalents, and restricted cash. Our operating cash flow in the second quarter was negative $4 million, a $3 million improvement year over year, and a $25 million improvement quarter over quarter. In Q2, actions related to strengthening the balance sheet were the primary drivers of the change in cash balance. During the quarter, we reduced our total debt by $27 million as we paid off the remaining balance of our 2025 convertible notes. Since the beginning of 2024, we have reduced our total debt by $80 million. We have also rebalanced our debt maturity cycle and strengthened the balance sheet. Our next maturity isn't until 2028.

Operator

Capital expenditures on property, plant, and equipment for the quarter were $8 million due to the timing of planned investments to upgrade and densify our authentication centers. We continue to anticipate full-year CapEx PP&E to remain within 2% to 3% of total revenue. Looking ahead, we expect to generate strong positive free cash flows in Q3 and Q4. Similar to last year, we expect free cash flows to outpace adjusted EBITDA in the second half, demonstrating our business model's favorable cash dynamics as we grow. Turning to our P&L outlook for the remainder of the year, we are increasing our full-year guidance, demonstrating our confidence in the trajectory and strategy of the business. We now expect full-year GMV in the range of $2.030 to $2.045 billion for the year, up 11% year over year at the midpoint of our guidance range.

Operator

We expect revenue in the range of $667 million to $674 million, up 12% year over year at the midpoint of our guidance. We now expect adjusted EBITDA in the range of $29 to $32 million, with margin expansion driven by top-line growth and operating expense leverage. Moving to our outlook for the third quarter, GMV is expected in the range of $495 million to $502 million, which represents 15% growth compared to the prior year at the midpoint of our guidance range. Third quarter revenue is expected in the range of $167 million to $177 million. This reflects 14% growth compared to last year at the midpoint of our guidance range. We continue to expect direct revenue to remain in the range of 10% to 15% of total revenue.

Operator

Third quarter adjusted EBITDA is expected to be between $6.1 and $7.1 million, approximately 3.9% of total revenue, and over 230 basis points of margin expansion year over year at the midpoint of our range. In closing, our second quarter financial results show the effectiveness of our disciplined approach to unlocking supply, driving efficiency, and obsessing over service. Record GMV and revenue, coupled with our improved profitability, is stemming from the powerful flywheel effect we've created. Through our growth playbook, we are confident in our ability to continue driving profitable supply. Additionally, our investment in AI and automation is already yielding efficiency gains and improved unit economics with more to come. The momentum in our business and our outlook for 2025 signals confidence in our ability to capitalize on the increased consumer interest in luxury resale.

Operator

We are poised for sustained growth, improved profitability, and consistent cash flow while defining the next era of luxury resale. With that, I will turn the call back over to the operator to begin Q&A. Operator?

Speaker 5

At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ike Baraco with Wells Fargo. Please go ahead.

Speaker 5

Hey, everyone. Congrats on the quarter. Two from me. I'll start with the top line. I guess maybe Rati, just really, you know, great revenue beat in the quarter and the guidance is pretty impressive. Any chance you could comment on kind of the cadence you've seen over the past couple of months or just something, you know, quarter to date? It's just a pretty big inflection in the business and would love to get more details on maybe what's underpinning that.

Speaker 1

Yes, hi, Ike. Thanks for the question. As far as quarter to date is concerned, we are seeing momentum in the business. You saw a breakout quarter in Q2. We see that momentum keep pace in Q3 with a slight, if anything, acceleration that is factored into our guidance. What gives us confidence there is the supply, second quarter of double-digit new seller growth as well. Our growth playbook, those reinvestments, they're really working.

Speaker 1

Got it. For Ajay, on the margins, the growth is kind of starting to flatten out in the mid-70%, which makes sense. The take rate, I think, was down year over year because of the buyer shift and the higher AUV product. Is that just something we should keep in mind going forward? Should the take rate start to go down a little bit as you're getting more AUV customers? Should the gross margin that are reported maybe even start to be down year over year, even though you're generating big growth and better EBITDA? Just kind of curious how we should think about the model in the near term going forward.

Operator

Yeah, thanks for the question, Ike. I think on take rate, you nailed it. It really just ties back to the average order value, right? AOVs in Q2 are up 8%. As you said, when we mix into higher value items, it has an effect on our take rate as a percentage going down. Clearly, higher value items bring in higher gross profit dollars for us. We'll take them all day long. The second part of your question on gross margin, the anchor point for our gross margin is really our consignment gross margins. They were at 89.3% and showing really healthy growth, up 90 basis points versus year on year. I think you should expect us to be within the 74% to 75% range. Some of it is the mix of consignment versus other direct revenues and shipping revenues.

Operator

Really, I think at the end of the day, take rate connects back to consignment gross margin, both of which are really strong.

Operator

Yeah, thanks.

Speaker 1

Your next question comes from the line of Robert Brooks with Northland Capital Markets. Please go ahead.

Speaker 1

Hey, good afternoon, guys. Thank you for taking my question and congrats on the strong quarter. In the opening remarks, Rati, I believe you were talking about expanding to, I believe the term was luxury vendors and international consignors. Just wanted to double-click on that to understand what those would look like in actuality and maybe help frame the opportunity there for driving more supply.

Speaker 1

Yes. Hi, Bobby. Thanks for the question. I was referring to in the prepared remarks our dropship channel. This year is really about testing and learning in this area, still really early days. We are happy with some of the momentum we're seeing this year, testing, learning, like I said, but also building the capabilities at the end of the day. We started with certain categories. We've expanded to fine jewelry, watches, and handbags as well. I do believe this could be a growth driver over the next few years, especially if we're looking at onboarding international partners as well.

Speaker 1

Got it. That's helpful. I just wanted to know, or wanted to hear more about how you're thinking about the scalability of the sales force. Obviously, a few years back, you guys made the intentional shift in the hiring process, and that's really resulted in improved supply trends. Combined with the new sales force incentives, that's further bolstered it. What I'm getting at is with GMV up 14%, could you give us a sense for how much did the luxury manager headcount increase?

Speaker 1

Yeah, as far as efficiencies go, when we look at the sales functions, and we look at every variable function this way, whether it's operations, retail locations, or sales organizations, we always really goal them on hitting a certain amount of efficiency. Let's say low single-digit efficiencies in each of these areas. We saw the same here on the sales side, and a few things really drove that efficiency. One of them is appointments per day. I talk a lot about that, right? How do we increase their appointments per day? The compensation structure driving the quality of their appointments versus the quantity of their appointments. Things like the re-consign program, the referral program, all of these things drove supply, but also helped us find and see efficiencies in the sales force.

Speaker 1

Got it. That's helpful. I'll return back to the queue. Thank you.

Speaker 5

Your next question comes from the line of Ashley Anne Owens with KeyBank Capital Markets. Please go ahead.

Speaker 5

Hi. Thanks for taking our questions. Rati, I think you mentioned in the prepared remarks that the quarter had the highest new consignors ever. I just wanted to dig into that a bit. I know there's been a ton of focus on the sales team, providing them with new tools to unlock supply, but just curious if you've made any tweaks to the approach, anything you're doing differently than in years past to attract new customers, if you saw a strong response to some of the other consignor tools that you also outlined, and then additionally, just a higher number of buyers become sellers, anything to kind of highlight there. Thank you.

Speaker 1

Yes, thanks, Ashley, for the question. We are seeing momentum in new consignors 100% as well as supply. A couple of things drove that. Number one was the marketing reinvestment that we made. It's a real full funnel approach. I am really happy with what we're seeing, the efficiencies there in marketing, and then we're able to take that money and reinvest it into new sellers and growth. The second thing I would say is our growth playbook, right? You've heard me talk about that a lot, that sales, marketing, and retail really coming together, meeting the customer consigner where they are. I could give you a couple of examples of that on the sales side. Like I said, it's the compensation structure, the referral program to bring on new sellers. We made that more rich, but still very much ROI positive.

Speaker 1

We also introduced something our customers were asking for, a re-consign feature. It had our buyers become consignors, and that flywheel is really important for what we do. On the retail side, a few different things. A quarter of our new consignors come from retail, and we're offering now pop-up events. I talked about that in my prepared remarks, on-demand appointments. We have three new stores in market this year, and I'll give you an example of one, Houston. Really happy with the performance over there. We're seeing a 92% increase in new sellers in Houston, almost 50% more supply in that market. Just to give you, that's just one of the stores, right? We've got a couple of others. It gives us confidence going into Q3 as well.

Speaker 1

Got it. Thank you. Just to follow up, you touched on Athena a little bit, but would be curious how much of the assortment this has now been rolled out to and any updates to metrics and the rollout process you're willing to share. I think last quarter it was called out that about 10% of the items are processed through Athena and that you were cutting processing times by 20%.

Speaker 1

Yes, I'll start. Ajay, feel free to step in here. As far as operational leverage and efficiencies, AI is the cornerstone of that, but Athena is also a big one, like you said. Right now it's at 20% coverage. By the end of the year, we'll be close to 40% there, and we're on track for that. At the end of the day, the objective is to cut multiple dollars in cost per unit in the medium term.

Speaker 1

Super helpful. Thank you.

Speaker 1

Thanks.

Speaker 5

Your next question comes from a line of Marvin Milton Fong with BTIG. Please go ahead.

Speaker 5

Great. Good evening. Thanks for taking the questions. Congrats on the quarter. I would just like to kind of touch on this. I don't know if this was related to tariffs or anything, but the strength, the AUV was very strong. Usually, it's easily kind of weaker. I think you called out good performance in higher ticket items. Do you think that that was at all tied to tariffs and people trying to maybe get ahead of that? The other side of that question is, if you do get some better pricing that would make transactions more profitable for you and increase the LTV of customers, would you consider reinvesting some of that into more marketing? You guys have obviously driven some really nice marketing leverage, but just wanted to get your thoughts on those two aspects of pricing.

Speaker 1

Yes, thanks, Marvin. Thanks for the question. As far as performance right now in Q2 performance, I will say all of the initiatives that we've reinvested in that I just talked about around marketing, retail, sales, all of those tactics and projects directly contribute to the growth. That's number one, and that's what we believe that it's driven out of. You brought up tariffs. I do believe we are a tariff beneficiary for many different reasons, right? Our source is the domestic closet. There's $200 billion trapped in there. As pricing increases in the primary market, our pricing algorithms follow, and we benefit and see pricing increase as well. You also brought up average order value, and yes, that's up 8%, about 8% up year over year. I would say that's half price, and that's half volume. I think that's really important to know, right?

Speaker 1

As we reinvest in marketing, we're also seeing the volume come through. You also see it in our overall growth rate, right? 14% up year over year. Two-thirds of that is volume, and a third of that is price. I think your last question was around, you know, would we invest more in marketing? 100%, right? Gaining more efficiency, which we continue to test there, learn there. We continue to find efficiency, and our plan is to continue and then invest there. Social being, you know, paid social, we're seeing a lot of kind of momentum there as well. We'll continue to test new channels with this more full funnel approach, like I mentioned before.

Speaker 1

Got it. If I may, just to build on Ashley's question there, getting Athena up to 30% or 40% by year end, would that be that you're expanding Athena into other categories, or are you just going to be covering more? I think you've been started with ready-to-wear, but how exactly is that expansion going to manifest itself?

Speaker 1

Yes, that's exactly right, Marvin. It's going to move and cover more categories. That's right.

Operator

Okay. Marvin, just to build on that, we often talk about Athena as an example of our focus on AI. Behind Athena is an artificial intelligence model. What we're doing is training it, testing it, and making sure that once we're comfortable with it, we open it to more categories. We started with ready-to-wear, and as the model gets more and more accurate with other categories, we will continue to expand it.

Speaker 4

Yeah, Marvin, this is Caitlin. Just one other thing to add. When we talk about the 20%, that's of total items, not yet of total value. We really see this as not only just a one or two quarter, you know, to drive operational efficiency, but we see this as a multi-year process to getting to being much more efficient on the authentication, on the processing of goods.

Speaker 4

Perfect. I appreciate all that. Thank you.

Speaker 1

Thanks, Marvin.

Speaker 5

Your next question comes from Mark R. Altschwager with Baird. Please go ahead.

Speaker 5

Great. Thank you for taking my question. Congrats on the results. Just to start, Rati, you characterized this as breakout performance. You're now guiding to low double-digit revenue growth. Just curious with the progress that you're making across many of these strategic initiatives, any update on how you're thinking about the medium-term top-line algo for the platform? I guess, what are the factors that would support sustained growth in this low double-digit, low teens range versus the kind of high single low double that we were talking about entering the year?

Speaker 1

Yes, thanks, Mark. I was waiting for that question. I will say that 8% to 12%, you've heard me say over and over, high single-digit, low double-digit growth rate, that's optimal to plan for. I will say it's optimal to run our business on. Could we do better most quarters? Sure, maybe. Our focus is really on profitable growth right now. I'd say for planning purposes, that's what I would plug in.

Speaker 1

Fair enough. Just one on margin, Ajay, drove really nice margin leverage here in the second quarter. I guess first, maybe help us understand where you outperformed the plan. As we look at the guidance for Q3 and implied for the back half, I guess it would suggest kind of less year-over-year margin expansion. Just curious, what would be different or what are you planning different in terms of flow-through dynamics in Q3 in the back half versus what we saw in the first half? Thank you.

Operator

Yeah, Mark, thank you so much for that question. We feel really good about how we are expanding EBITDA margins at the business. Last year, as a reminder, last year was our first full year of adjusted EBITDA profitability. We ended the year with 1.6%. If I look at the first half, we've slightly more than doubled that. We're going to be reporting 3.4% EBITDA margin. Our guidance for the full year, 2025, implies 4% to 5% margin for the full year. Very, very pleased with the progress that we're seeing there. We expect that trajectory to continue. It's really driven by three things. It's starting with the gross margin, where we have very healthy gross margins, 74% to 75%. We see that translating nicely into as we grow. You heard Rati talk about our focus on ops excellence and AI. Those initiatives are delivering good results.

Operator

You can see that in our OpEx leverage in Q1 and Q2. We expect that to continue. Finally, just our fixed cost base. We are getting good leverage on our fixed cost base, our investments in product and technology. That too will continue. I see no structural reason why we can't be a 15% to 20% EBITDA business over the medium term.

Operator

Thank you.

Speaker 5

Your next question comes from the line of Anna Glaessgen with B. Riley Securities. Please go ahead.

Speaker 5

Hi, good afternoon. Thanks for taking my question. I'd like to circle back on the new consigner growth. I understand it just happened in the second quarter, so it's a little early to have seen repeat consigning. Just wondering if there's anything in the data about this recent cohort to suggest that this is a consumer response to tariffs or a response to increased prices in the primary luxury market, or anything to suggest that this is more of a one-time surge in nature rather than a permanent shift in consigner growth. Thanks.

Speaker 1

Yes, hi, Anna. Thanks for the question. We are able to kind of directly see where these new sellers are coming from, what projects and initiatives are driving these new consigners. I mentioned our re-consign program, our referral program, our reinvestment in marketing. We do believe that this is not a one-time benefit. This is now the second quarter that we're seeing double-digit growth there. As far as the change in the cohorts, any changes? I'm not seeing any changes there. They are pretty consistent. Mostly Gen Z, Millennial, is almost 55%, high frequency, medium to high income. I will say they buy and sell often. If anything, I think we're getting better at targeting this group and these cohorts and these flywheelers.

Speaker 1

Got it. Thanks. Turning to the potential benefit from Athena now taking over 30% to 40% of intake, anything to share on what the potential savings per unit could be? I know you referenced a couple of dollars per unit, but anything you can share there incrementally as to what the opportunity could be as that we're fully rolled out?

Operator

Yeah, hi, thanks for the question. I can take this one. Athena today is touching about 20% of the items, and we expect it to touch 30% to 40% of the items by year end. When you look at the impact it's having, I would highlight it as one of the key drivers behind the operating leverage we're seeing on the ops and tech line. In Q2, we saw 310 basis points of leverage on that particular line, and we think that Athena is behind that. It will continue to drive leverage as we go ahead. Internally, we obviously look at the cost per item. We look at our ops, and we look at our operation center. We look at what does it cost for us to process and authenticate each item.

Operator

Rati's reference to how we see Athena playing out is really talking about how we believe that we can take out multiple dollars of costs on a per item basis as we scale Athena across our business.

Operator

Great. Thanks.

Speaker 5

Your next question comes from the line of Jay Sole with UBS. Please go ahead.

Speaker 5

Great. Thank you for taking the question. Can you just talk about the luxury space overall? Some of the public European luxury companies have talked about maybe a slowdown in luxury spending at a full price level. Can you talk about the interplay between that trend and how that benefits or just affects the resale market? Thank you.

Speaker 1

Yes, thanks, Jay, for the question. As far as the luxury space and the slowdown or any kind of impact that we're seeing on resale, that's the interesting thing about our business. It's the diversity of products, the multiple categories, multiple brands. If some things are out of favor, other things are in favor, right? Our pricing algorithms. For example, jewelry is really hot right now. We're selling that really well. We've updated prices or increased prices on both branded and unbranded, while maybe another brand is out of favor and you have to price accordingly. We're seeing both things there. We don't see that having a huge impact on our business. I will say when the luxury space increases, let's say tariffs do impact their business and they have to increase their prices in the primary market, we usually also increase our prices so we can benefit from that.

Operator

Maybe just to add to that, you hear us talk about the $200 billion total addressable market that drives our business. As a supply-driven business, we get excited about the fact that we see about $200 billion of items that are already in people's closets. Our growth playbook excels at unlocking that supply and bringing it onto our platform, which is a source of growth for us. As the primary luxury market goes through its ups and downs, the effect on us is hard to sort of tease out because we have enough total addressable market to go off there.

Operator

Got it. Interesting. Maybe just one more if I could. Just on the direct revenue segment gross margin, a little bit different from last quarter. Can you just talk about what the differences were? Is that seasonal? Where do you expect the margins in that segment to trend for the second half of the year?

Operator

On the direct, was that your question? Yeah, yeah.

Operator

Yeah, yeah.

Operator

Thank you. Thanks for that question. Yeah, direct. We've rebuilt our direct business to be a much more attractive and more profitable part of our portfolio today. You've heard us talk about how we expect gross margins in that revenue stream to be between 15% to 25%, which I acknowledge is a pretty wide range. It really comes down to the mix of what we sell of the items being sold through that revenue stream. For example, when we sell higher-priced items like watches or high-end jewelry, our percentage margin on those products is going to be lower, but the dollars are very attractive.

Operator

Understood. Got it. Thank you so much.

Speaker 5

Your last question comes from the line of Robert Brooks with Northland Capital Markets. Please go ahead.

Speaker 5

Hey, guys. Thanks for taking the follow-up question. Circling back on Athena, I was just curious where in your inbound process you see the most opportunity to cut dollars out. I feel like it would be helpful for investors to maybe draw a bridge of how applying Athena to those areas could drive those costs lower. Thank you.

Operator

Thanks, Bobby. Athena, as a project, as we've spoken about, is really touching what happens to an item from the moment it arrives in our fulfillment centers till it's made available, right? Think about it as a project that is driving efficiencies into how we set up an item, how we create that listing, and just make sure that it's an authenticated item. That's sort of the core of what Athena is looking at right now. I'd say Athena is an example of what we're doing in artificial intelligence. You've heard us talk about how AI is really focused on our core strategic modes, right? It's pretty pervasive, right? When you look at how we acquire supply, initiatives like smart sales and smart prospects are driving efficiencies, leveraging our data to make our sales be more efficient.

Operator

AI is also driving our pricing, which is at the core of how we help our customers, how we help our sellers find the best value for what they're selling. It's in multiple places, and I think what you're seeing in our OpEx leverage is really a result of how we've brought that to bear on the areas where we can make massive differences in our business.

Operator

Appreciate the caller.

Speaker 5

At this time, I will now turn the call back over to Rati Sahi Levesque, CEO, for closing remarks.

Speaker 1

Thank you. First of all, I just wanted to thank you all for your questions, and we appreciate you joining us today. I want to extend a sincere thank you to every member of The RealReal team. These impressive results we've shared today are a direct reflection of your hard work and disciplined execution across our strategic pillars. I couldn't be more proud of your dedication to our mission and what we've accomplished together. The momentum we have is real, and it's fueled by your commitment to operational excellence and to defining the next era of luxury resale. Thank you all, and we'll speak to you again soon.

Speaker 5

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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