The RealReal, Inc.

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 speaker's 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 Kaitlyn Howe, Senior Vice President of Finance. Please go ahead.

Thank you, operator. Joining me today to discuss our results for the period ended June 30, 2025, our Chief Executive Officer and President, Rossi 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-GAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAP financial measures to the most comparable GAP measures in our earnings press release, which is available on our investor relations website. I would now like to turn the call over to Rossi Levesque, Chief Executive Officer of the RealReal.

Thank you, Kaitlyn. 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. 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 drives 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. And 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 process 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. Our customers view their closet as an investment that retains value. In fact, 47% of our consumers consider the resale value of -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 GMB at $504 million and record revenue of $165 million, both up 14% year over year. Adjusted EBITDA was $6.8 million, a .1% margin, which is a substantial beat versus expectation. This performance was underpinned by record new consignors, double-digit growth for the second quarter, in a row, and our highest number of new consignors ever. We're encouraged by this trend, which has continued into Q3, as new consignor 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 pillar, 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. Our season sales team has been collaborating with our store team on experiential pop-up events, like a recent event, Newport Beach, which unlocked $800,000 of supply, and another at a 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 reconfine program makes it easy for our existing repeat consigners to add items they've previously bought from us back to their sell list. This provides a seamless, convenient way to reengage with our platform, creating a circular loop for luxury assets. Reconsigned 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. Building on the success in watches and handbags, we are expanding dropship to fine jewelry and 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. 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. 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 consignors 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 insight 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. Our relentless focus on innovation will help us continue to meet and anticipate the evolving needs of our discerning customers. In closing, there's a rising tide in luxury resale that we've helped to pioneer. Now we're capitalizing on it and accelerating it. Resale is a 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 cam 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. 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.

Thank you, Ravi. Good afternoon, everyone. I'm 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 consignors. 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 biobase also expanded, increasing 6% on a trailing 12-month basis to exceed 1 million active buyers. 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 .3% in the quarter, an increase of 20 basis points compared to the prior year. In second quarter, consignment gross margin was .3% an improvement of 93 basis points year over year. Direct gross margin was .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 shunt bags. Overall, we are pleased with the stability and continued improvements in total gross margin. Second quarter operating expenses of 133 million approved 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 .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 .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. 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 equivalence 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. 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 two 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. We expect revenue in the range of 667 million to 674 million, up 12% year over year at the midpoint of our guidance. And 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 to 170 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. Third quarter adjusted EBITDA is expected to be between 6.1 and 7.1 million, approximately .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. 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?

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 Barocco with Wells Fargo. Please go ahead.

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

Yes, Ike, thanks for the question. As far as quarter to date is concerned, you know, we are seeing a momentum in the business. You saw breakout quarter in Q2. We see that, you know, momentum keep pacing Q3 with a slight, if anything, acceleration that is fastened into our guidance. But what gives us confidence there, as you know, is the supply, second quarter of double digit, new seller growth as well, and our growth playbook, those reinvestments there really working.

Got it. And then for Jay, on the margins, I guess the grosses are kind of starting to flatten out in the mid-70s, which makes sense. And the take rate, I think, was down year over year because of the buyer shift and the higher AOV 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 AOV 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, you know, in the near term going forward.

Yeah, thanks for the question, Mike. I think on take rate, you nailed it. It's really just to the ties back to the average water value, right? AOVs in Q2 were up 8%, and as you said, when we mix into higher value items, it has an effect on our take rate as a percentage going down, but clearly higher value items are going to bring in higher gross profit dollars for us. So, you know, we'll take them all day long. The second part of your question on gross margin, you know, the anchor point for our gross margin is really our consignment gross margins. They were at .3% and showing really healthy growth, up 90 per basis point 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, but really I think at the end of the day, take rate connects back to consignment gross margin, both of which are really strong.

Yeah, thanks, congrats. Your next question comes

from the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

Hey, good afternoon, guys. Thank you for taking my question, and congrats on the strong quarter. In the opening remarks, Roddy, 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.

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

Got it. That's helpful.

And then I just wanted to know like, or wanted to hear more about how you're thinking about the scalability of the Salesforce. Obviously, a few years back you guys made the intentional shift in the hiring process and that really resulted in improved supply trends and combined that with the new Salesforce incentives that's further bolstered it. But kind of 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?

Yeah, you know, 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. So let's say low single digit efficiencies in each of these areas. So we saw the same here on the sales side, and a few things drew, kind of really drove that efficiency. So one of them is appointments per day. 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 reconfine program, the referral program, all of these things drove supply, but also helped us find and see efficiencies in the sales force.

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

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

Hi. Thanks for taking our questions. So, Rathi, I think you mentioned in the prepared work that the quarter had highest new co-signers ever. So 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 co-signers tools that you also outlined, and then additionally, just a higher number of buyers become sellers, anything to kind of highlight there. Thank you.

Yes. Thanks, Ashley, for the question. We are seeing momentum in new consigners, 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, and so 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, and 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. We also introduced something our customers were asking for, a reconfine feature, so it had our buyers become consigners, and that flywheel is really important for what we do. On the retail side, a few different things. A quarter of our new consigners come from retail, and we're offering now pop-up events. I talked about that in my prepared remarks. On-demand deployment. 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 92% increase in new sellers in Houston. Almost 50% more supply in that market. So just to give you, that's just one of the stores, right? We've got a couple of others. So it gives us confidence going into Q3 as well. Okay, Pabbit, thank

you. Just a follow-up, so you touched on Athena a little bit, but I 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%.

Yes, I'll start, Ajay, feel free to step in here. So 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. But really at the end of the day, the objective is to cut, right, multiple dollars in cost per unit in the medium term.

Ava Hapel, thank you. Thanks.

Your next question comes from the line of Marvin Fong, with BTIG. Please go ahead.

Great. Good evening. Thanks for taking the questions. Congrats on the quarter. Yeah, I'd just like to kind of touch on this. I don't know if this is related to tariffs or anything, but the strength, the AOV was very strong. Usually it's usually weaker, and I think you called out good performance and higher ticket items. So do you think that that was at all tied to tariffs and people trying to maybe get ahead of that? But just... And 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.

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. So that's number one, and that's what we believe that it's driven out of. But you brought up tariffs. I do believe we are a tariff beneficiary for many different reasons, right? We have our sources, the domestic closet, there's $200 billion trapped in there. And 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. And I would say that's half price and that's half volume. And I think that's really important to know, right? 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. And I think your last question was around, would we invest more in marketing? 100%, right? Gaining more efficiency as we continue to test there, learn there, we continue to find efficiency, and our plan is to continue and then invest there. Social being, paid social, we're seeing a lot of kind of momentum there as well, and we'll continue to test new channels with this more full funnel approach, like I mentioned before.

Got it, and if I may, just to build on Ashley's question there. So 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 gonna be covering more? I think you've been started with ready to wear, but how exactly is that expansion gonna manifest itself?

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

Okay. Yeah, and Marvin, just to build on that, like we often talk about Athena as an example of our focus on AI. Behind Athena is an artificial intelligence model, and really 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. So we started with ready to wear, and as the model gets more and more accurate with other categories, we will continue to expand it.

Yeah, Marvin, and 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. So we really see this as not only just a one or two quarter 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.

Perfect.

Appreciate all that. Thank you.

Thanks, Marvin. Your next question comes from Mark Altshager with BERT. Please go ahead.

Great, thank you for taking my question. Congrats on the results. To start, Rathee, you characterized this as breakout performance, 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?

Yes, thanks, Mark. I was waiting for that question. You know, I will say that eight 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. But our focus is really on profitable growth right now. So I'd say for planning purposes, that's what I would plug in.

Fair enough. And then just one on margin, Jay. Drove really nice margin leverage here in the second quarter. I guess first, maybe help us understand where you outperform the plan. And then 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. So just curious, I mean, 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.

Yeah, Mark, thank you so much for that question. You know, we feel really good about how we are expanding EBITDA margins at the business. You know, we, last year, as a reminder, last year was our first full year of adjusted EBITDA profitability. We ended the year with 1.6%. And if I look at the first half, we've slightly more than doubled that. We're gonna be reporting .4% EBITDA margin. And our guidance for the full year, 2025, implies four to 5% margin for the full year. So very, very pleased with the progress that we're seeing there. We expect that trajectory to continue and it's really driven by three things. It's starting with the gross margin, we have very healthy gross margins, 74 to 75%. And we see that translating nicely into as we grow. You heard Rathi talk about our focus on ops excellence and AI. Those initiatives are delivering good results. You can see that in our OPEX leverage in Q1 and Q2, and we expect that to continue. And 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. And I see no structural reason why we can't be a 15 to 20% EBITDA business over the medium

term.

Thank

you. Your next question comes from the line of Anna Glaskin with the BE Riley Securities. Please go ahead.

Hi, good afternoon. Thanks for taking my question. I'd like to circle back on the new consignor growth. I understand it just happened in the second quarter, so it's a little early to have seen repeat consigning. But 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 market, or anything to suggest that this is more of a one-time surge in nature rather than a permanent shift in consignor growth. Thanks.

Yes, hi Anna. Thanks for the question. We, again, we're able to kind of directly see where these new sellers are coming from, what projects and initiatives are driving these new consignors. So I mentioned our reconfine program, our referral program, our reinvestment in marketing. So we do believe that this is not a one-time benefit. This is now the second quarter, right, that we're seeing double-digit growth there. And then 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, and 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.

Got it, thanks. And then 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 dollars per unit, but anything you can share there incrementally as to what the opportunity could be as that's more fully rolled out.

So I think we're seeing a lot of changes Yeah, thanks for the question, I can take this one. So Athena today is touching about 20% of the items and we expected to touch 30 to 40% of the items by your 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 and it will continue to drive leverage as we go ahead. Internally, we obviously look at the cost per item. So whenever we look at our operations center, we look at what is it cost for us to process and authenticate each item. And Rathi'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 per item basis as

we scale Athena across our business. Great,

thanks. Your next question comes from the line of J.Sull with UBS. Please go ahead.

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.

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 product, the multiple categories, multiple brands. So if some things are out of favor, other things are in favor, right? And our pricing algorithms. So 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. So 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.

And maybe just to add to that, you hear us talk about to the 200 billion town 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. So as the primary market goes through its ups and downs, the effect on us is hard to tease out because we have enough time to go off it.

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, just talk about what the differences were. Is that seasonal? And where do you expect the margins in that segment to trend for the second half of the year?

Direct, was that your question? Yeah. Yeah. Thank you, thanks for that question. Yeah, directly, 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 margins, gross margins in that revenue stream to be between 15 to 25%, which I acknowledge is a pretty wide range. And really it comes back to, it 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.

Understood, got it, thank you so much.

Your last question comes from the line of Bobby Brooks with Northland Capital Markets, please go ahead.

Hey guys, thanks for taking the follow up question. And just go circling back on Athena, I was just curious where in your inbound process do you see the most opportunity to cut dollars out? And then 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.

Thanks Bobby. Athena as a project, as we've spoken about it, is really touching the what happens to an item from the moment it arrives in our fulfillment centers till it's made available, right? So 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's looking at right now. I would, I'd say Athena's an example of what we're doing in artificial intelligence. You've heard about us talk about how AI is really focused on our core strategic modes, right? So it's pretty pervasive, you know, 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 seem more efficient. AI is also driving our pricing, which is at the core of how we help our customers, help our sellers find the best value for what they're selling. You know, it's in multiple places and I think what you're seeing in our OPEC's leverage is really a result of how we brought that to bear on the areas where we can make massive differences in our business.

Appreciate the color.

And at this time, I will now turn the call back over to Roddy Lebeck, CEO for Closing Remarks.

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.

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