RealReal (NASDAQ:REAL) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/.
View the webcast at https://the-realreal-earnings-call-q2-2026.open-exchange.net/registration
Summary
The RealReal achieved a record GMV of $617 million in Q2 2026, marking a 22% year-over-year increase and the fourth consecutive quarter of GMV growth over 20%. Revenue rose 17% to $193 million.
The company expanded its adjusted EBITDA margin to 7%, up nearly 300 basis points from the previous year, and improved its free cash flow by $9 million year-over-year.
Strategically, the RealReal is leveraging AI in pricing and authentication, expanding its store footprint, and growing its Real Partners program, which connects high-value consignors to the platform.
The company is scaling its AI-enabled intake system, Athena, to process more items efficiently, including high-value goods, aiming for 50% of items processed through Athena by year-end.
Full-year guidance has been raised, with expectations for GMV growth of 19% to 20% and revenue growth of 14% to 15%, supported by strong supply trends and increased strategic investments.
Full Transcript
Kate, Operator
Good afternoon, everyone. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome you to the RealReal second quarter 2026 earnings call. All lines have been placed on mute. After the speakers' remarks, there will be a question-and-answer session. At this time, I would like to turn the call over to Emily Gaka, Senior Director of Investor Relations.
Emily Gaka, Senior Director of Investor Relations
Thank you, operator. Joining me today to discuss our results for the period ended June 30, 2026, are Chief Executive Officer and President Rathi 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. I would now like to turn the call over to Rathi Levesque, Chief Executive Officer of the RealReal.
Rathi Levesque, Chief Executive Officer and President
Good afternoon, and thank you for joining us. Q2 was another standout quarter for our business. We delivered GMV of $617 million, an all-time high for the RealReal, up 22% year over year and marking our fourth consecutive quarter of GMV growth above 20%. Revenue grew 17% to $193 million, and trailing 12-month active buyers accelerated for the fourth consecutive quarter, up 11% year over year. Along with strong top-line growth, we also delivered meaningful margin expansion.
Adjusted EBITDA margin of 7% was up nearly 300 basis points versus last year. These results reflect the disciplined execution of our strategy. Quarter after quarter, we're up-leveling the customer experience, deepening trust, and compounding our advantage. Our buyers are higher quality, our sellers are more engaged, and the platform connecting them gets smarter every quarter. Given the strength of what we're seeing, we are confidently raising our full-year outlook.
The RealReal is a marketplace deliberately designed for the luxury consumer and the way they want to be served. We've developed deep expertise across the full range of luxury, establishing the trust that comes from handling our members' most valued possessions. Every part of our platform, from sourcing and authentication to pricing and merchandising, is built to deliver an unparalleled service. And it will continue to evolve as our customers do. As the resale market grows, trust is what separates leaders from the rest.
We take possession of every item, we authenticate it, and we stand behind our work—a standard most marketplaces structurally cannot match. That's what brought a consigner to us in Q2 with a $2.5 million F.P. Journe watch. And it's the same standard that serves a member discovering luxury for the first time. That full service has enabled us to build the largest authenticated luxury dataset in the world. And AI is unlocking the power of that data. Across pricing, search, authentication, and the tools our members use to manage the value of what they own, we see where luxury demand is moving in real time. When demand moves, we're positioned to secure the supply and have the data and pricing intelligence to meet it. Let's discuss the progress we're making against our strategic pillars, starting with our growth playbook. Our sales team sets us apart. We don't wait for supply to come to us. Our people go out and source it, which means our assortment is curated, not accumulated.
Year to date, supply per sales rep is up 15% versus last year, and the relationships they build deepen over time, with consignors coming back and bringing more of their closet with them. The same relationships and trust that bring consignors back also bring us new ones through referrals. Our Real Partners program connects us with high-value supply through professionals like stylists and real estate agents who already have the trust of luxury consumers.
Sellers referred through our Real Partners program consign four times the value of our average new consigner. The program demonstrates the network effects in our business, and we see meaningful runway ahead. As we discussed last quarter, we're building an asset-light international supply network. In the second quarter, we onboarded two large Japanese vendors onto our drop-ship program. The success of our sales team, partnerships, and our newer supply initiatives is bringing more high-quality supply every quarter.
On the marketing side, we are acquiring higher-quality buyers. New buyers, up double digits in the second quarter, are showing stronger lifetime value and are more likely to turn into consignors, becoming RealReal and reinforcing our flywheel. In Q2, we launched our Be a RealRealer campaign, putting flywheel messaging at the center of our brand marketing. We're investing in marketing with a healthy balance across brand-building and performance channels.
We see real opportunity as resale adoption accelerates and younger generations discover luxury through our platform. We are also enriching the product data we share with paid channels and helping search platforms match the right buyer to the right item. These new buyers are spending more on their first purchase. That same depth of data is why we lead when consumers turn to AI to look for pre-owned luxury. Our stores deepen consigner relationships, deliver high-quality supply, and build trust in the communities we serve.
We are expanding our store footprint strategically in 2026. We look forward to opening our first Boston area store this fall and an additional neighborhood store in the LA market, one of our largest and fastest-growing regions. These new stores, along with our San Francisco location, which opened earlier this year, bring our total store count to 20. Going forward, we'll continue to target one to three new stores per year. Turning to our second pillar, obsess over service.
On the buyer side, we recently started testing an AI-powered conversational shopping agent in partnership with Google. We have over 1 million one-of-a-kind listings and more than 40 million members, so we are always finding ways to make product discovery more intuitive. For example, if you're looking for a dress for a fall wedding in upstate New York, our agent will deliver a specific and personalized set of results. We're also using AI and our proprietary data to automatically add richer detail to every listing.
Information like occasion, collection, and trend data used to require manual input. This means items are more discoverable both on and off platform. On the seller side, more than two-thirds of our consignors tell us they prefer a full-service experience. They are looking for a trusted partner who handles everything. This is what our full-service model delivers. You hand us the item, and we do the rest. Every day, we work to make our experience even better, faster, and more transparent, as well as being easier to engage with.
First, our Price Estimator tool is now built on a centralized, AI-powered pricing architecture that gives our sales team and our consignors consistent, real-time visibility into the current market value of their items. Our sales team is actively using the tool, and we've launched it in a test for 20% of our consignors. We're also redesigning our digital onboarding for new consignors, removing friction from the seller funnel and making it more conversational from the first interaction.
And we continue to build the feature set for My Closet, the product manifestation of our vision to become the personal advisor of the closet. We're building the system of record for our customers' luxury assets and expect to begin rolling out the broader consumer-facing experience in the coming quarters. Turning to operational excellence, Athena, our AI-enabled intake system, continues to scale, and we remain on track for our year-end target of nearly 50% of items flowing fully through it.
We're also starting to process higher-value items that previously required manual handling and attribution. A year in, Athena has shown us there's even more opportunity. We've begun experimenting with the next iteration, extending AI and automation into parts of intake that weren't in the initial phase and removing more manual steps. Ultimately, Athena and our broader technology investments are helping to remove multiple dollars per unit from our processing costs, increasing speed to sell, and allowing us to scale with minimal incremental headcount investment.
We're delivering growth while continuing to drive operating leverage across the business. Entering the year, we said 2026 would be the year our advantages begin to compound. That statement is starting to become reality. Each part of our platform, from authentication and pricing to supply and member experience, makes the other stronger. Looking at the broader landscape, we're leading a meaningful shift in how luxury consumers shop. In a recent survey of our customers, over 70% of respondents said that the RealReal elevates their personal style, allowing them to better express who they are.
They're prioritizing quality, individuality, and lasting value over trend cycles. The RealReal is more than a marketplace. With access to decades of fashion across thousands of designers, we help our customers discover, shop with confidence, and maximize the value of their closets. Before I turn the call over to Ajay, I want to thank our team for delivering an exceptional quarter in Q2. Results like this require execution across every part of the business, and I'm incredibly proud of our team.
Your dedication continues to raise the bar for how we show up for our consignors and buyers and reinforces my conviction in where we're headed. With that, I'll turn the call over to Ajay.
Ajay Gopal, Chief Financial Officer
Thank you, Rathi. Good afternoon, everyone. I am pleased to review our second quarter results, which demonstrate in the financials what Rathi just described. Our strategy is delivering results, and we are beginning to see the compounding effects we've been investing towards. You can see it in the durability of our growth and the operating leverage. In our model, Q2 GMV of 617 million increased 22% year over year and accelerated to 37% on a two-year stacked basis.
We delivered adjusted EBITDA of 13.5 million, or 7% of revenue, expanding 290 basis points year over year. Orders increased 8% and average order value grew 13% to $659. Q2 revenue of $193 million increased 17%, with consignment revenue up 15% and direct revenue up 26%. Supported by strong supply through the quarter, with strength across our sales team, stores, and direct channels, beyond the top line we saw deeper engagement across the platform. Trailing 12-month active buyers grew 11%, surpassing 1.1 million.
We also saw more of our buyers become consignors. In the second quarter, 44% of our new consignors came from our active buyer base, up from 40% just two quarters ago. This highlights the strong network effects in our model and is a meaningful driver of long-term growth and profitability. Our second quarter take rate was 35.9%, down 200 basis points year over year. As we've discussed, this movement is driven by a favorable shift in product mix. In the first half of 2026, sales of items above $1,000 increased 36% versus last year as buyers increasingly trust us with high-value items.
These items carry a lower take rate percentage but generate more profit dollars per transaction and stronger unit economics. Gross margin expanded 10 basis points to 74.4%. Gross profit of 143 million was up 17% versus last year. Total operating expenses leveraged approximately 470 basis points year over year. Excluding stock-based compensation, Opex leveraged 370 basis points, primarily driven by operations and technology leverage. This reflects the tangible impact of automation and our ATHENA initiative.
As more items flow through our AI-enabled intake system, we are processing more volume with less incremental labor. Excluding stock-based compensation, SG&A also leveraged approximately 110 basis points, reflecting improved productivity and fixed cost discipline. As we scale, in the second quarter we made strategic investments, increasing our spend in both brand and performance marketing. As the leader in an attractive and growing market, we see opportunities to acquire high-quality buyers and consignors and to build more awareness as resale adoption accelerates.
We expect to continue with a similar level of investment in the third quarter. Together, this brought adjusted EBITDA above our prior guidance to 13.5 million, or 7% of revenue, expanding 290 basis points versus last year. We ended the quarter with 134 million in cash, cash equivalents, and restricted cash. Capital expenditures on property and equipment for the quarter were 4 million. We continue to anticipate full-year capital expenditures on PP&E to remain within 2% to 3% of total revenue. 2026 investments are concentrated in our operations infrastructure, including our automated storage and retrieval system, which is expected to go live in Q4 and will expand capacity at our Perth Amboy authentication center by 35%. In Q2, we generated 2 million in operating cash flow, an improvement of 5 million year over year. Free cash flow improved 9 million versus last year. Looking ahead, we expect to generate strong positive free cash flow in both the third and fourth quarters.
Similar to last year, we expect free cash flow to outpace adjusted EBITDA in the second half, demonstrating the favorable cash dynamics of our business model as we scale. Turning to guidance, with the first half complete, continued strength in our supply trends, and greater visibility into the balance of the year, we are confidently raising our full-year outlook. For the third quarter, we expect GMV of 610 to 620 million, representing 17% to 19% growth year over year, revenue of 194 to 198 million, or 12% to 14% growth, and adjusted EBITDA of 13.5 to 14.5 million.
For the full year, we now expect GMV in the range of 2.535 to 2.565 billion, representing 19% to 20% growth year over year. Revenue is expected to be between 788 and 797 million, translating to 14% to 15% growth. And adjusted EBITDA is expected in the range of 66 to 69 million, which represents an 8.5% margin at the midpoint. This is an improvement of approximately 240 basis points versus 2025, and we remain on track to reach our target of 15% to 20% adjusted EBITDA margins over the medium term.
In closing, Q2 demonstrates what we've been building toward: durable growth, expanding margins, and a flywheel gaining real momentum. We enter the second half from a position of strength that is a direct result of our team's outstanding execution across the business, and I want to thank them for an excellent quarter. With that, I will turn it over to the operator for questions.
Kate, Operator
Thank you. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. If you are dialing in, you may press Star 9 to raise and lower your hand and Star 6 to mute and unmute. When it is your turn to talk, you'll receive a message on your screen from the host allowing you to talk, and then you'll hear your name called. Please accept, enter your audio, and ask your question.
We will wait a moment for the queue to form. Your first question comes from Ike with Wells Fargo. Please unmute and ask your question.
Ike, Analyst at Wells Fargo
Hey everyone, congrats on the quarter. I guess two from me. Just the revenue guide for the third quarter looks great. There's a lot of chatter out there on retail and just some slowdown. We've seen some during the summer. Just can you comment anything quarter to date? It doesn't seem like you're seeing any of that but wanted to bring it up. And then Ajay, I think you mentioned the pull forward of some investments. The flow-through margin on the second quarter was not as high as some of the other quarters.
Just is that, can you dig into that a little bit more and is that something that we should, you know, kind of model for the future or is this kind of a one-time initiative, just more detail on the margins in 2Q and what it means to the back half and go forward.
Rathi Levesque, Chief Executive Officer and President
Hi Ike, thanks for the question. I'll start, and I'll hand it over to Ajay for the second part of your question. As far as what we're seeing on the platform right now, our consumer continues to be quite resilient. We're all obviously looking at the buyer and supply coming through the site. Supply continues to be strong, sitting at that intersection, like we always say, between luxury and value, where if we do see some sort of consumer confidence that softens, it strengthens our case much of the time.
So the buyers continue to find their value prop compelling on our platform. And I'd say one other thing that we are seeing—you know this—but we offer that breadth and data across thousands of designers and categories and price points. So when consumer preferences shift, we're able to kind of shift with them pretty quickly.
Ajay Gopal, Chief Financial Officer
Thanks, Rathi. And Ike, to your other question on Q2 results, we're pleased with our results in Q2. GMV was up 22%, and we saw that translate to EBITDA of 7%, which was up 290 basis points year on year. As you look at that, it is in the range of what we expect to see on our path to delivering 15% to 20% adjusted EBITDA margins over the medium term. You've heard me talk about how we expect to add between 200 to 300 of margin every year. Q2 was in line with that range, and our guidance for the year is also to add about 240 basis points in 2026.
Ike, Analyst at Wells Fargo
Thank you.
Kate, Operator
Your next question comes from Bobby Brooks with Northland Capital Markets. Please unmute and ask your question.
Bobby Brooks, Analyst at Northland Capital Markets
Hey, good afternoon team, and thank you for taking my questions. On the slides, it was called out AI pricing fully launched, and one piece of it called out lifecycle discounting. But I know you had already had a system in place that automatically cut the price of items as they age. So just wanted to get a little bit more granular on what's new there.
Rathi Levesque, Chief Executive Officer and President
Hey Bobby, thank you for the question. So what we are referring to there is really how we've extended our AI-based pricing algorithm to now manage the movement of price from when an item is initially launched on the platform. What we are doing today is slowly expanding coverage of that model to look at many more data points like page views that an item is getting, the number of buyers that are clicking on the Obsess icon when they look at an item, and we use those signals to then modulate the price of the item going forward.
It's a lot more precise. Prior to this model, we still had a lot of people that could override that and we had more merchandising team effort going into this, and now we have more precision into how we move our prices. The net effect, of course, of doing all this is we are able to capture a slightly higher price. We're able to get the best possible price on behalf of our consignors and also make sure that our sell-through rate stays strong.
Bobby Brooks, Analyst at Northland Capital Markets
Got it. So just a more precise way of—A more precise way of doing it is essentially it. Essentially it. And relying more on data signals. Awesome. And then active buyer growth has been strengthened in the last few quarters, and the second quarter was the strongest percentage growth in some time. And that's really impressive when you think of the nominal numbers getting higher, and obviously law of large numbers makes those percentage gains tougher. But it's not seemingly being an issue for you guys. So it feels like if maybe we step back, what in your approach to getting new buyers might have changed over the last couple quarters that you think is really driving this acceleration?
And are there more benefits to come from the strategy?
Rathi Levesque, Chief Executive Officer and President
Yeah. Hi Bobby, I'll take this one. Thanks for the question. So a couple things. We're seeing the flywheel—we talked about the flywheel—that just becomes a more and more important mechanic in our business, and that strategy is gaining real momentum. So we're seeing the strong network effects there. Forty-four of now our new consignors came from our active buyer base in Q2. So the buyers we're acquiring today are just increasingly becoming consignors.
And that's how we're acquiring the buyers in the first place. So just reinforcing that loop, and what makes our business model so durable and capital efficient at the end of the day. But yes, we surpassed over 1.1 million buyers, growing I think we said 11% year over year. The spend is higher. We're seeing 50% more value come in through them, and then mostly Gen Z and Millennials—those are our fastest growing segments as well. So younger. And then we're just, as we think about our marketing, messaging, and our material, you'll see us looking at messaging that is flywheeler.
So Be a RealReal-er campaign was something that we launched that had really great conversion as well.
Bobby Brooks, Analyst at Northland Capital Markets
Awesome. And if I could just squeeze one more in on—you mentioned signing up consignors through the drop ship from Japanese consignors for the drop shipping. Just would love to hear a little bit more color there, and maybe if you could help frame is that like kind of the two really large new adds, or have there been prior adds before? Just trying to triangulate that. Thank you.
Rathi Levesque, Chief Executive Officer and President
Yes, sure. I'll take that one, Bobbi. So I'd say we're making deliberate, you know, measured progress on dropship as our kind of way into international. I talked about in Q2 we onboarded two pretty large Japanese vendors onto our dropship program and other significant partners as well in Europe, France and Italy specifically. I believe they have the potential to become some of our larger sellers on the platform. Still really early days. We talked about this year being very much in the test and learn phase.
But I'd say the early results are encouraging and, you know, in the medium term I continue to believe that the opportunity is real. What I like about dropship is that the supply is largely incremental, supply that wouldn't necessarily come via some of our other consignment channels. And then, you know, July marked our highest volume month in dropship. So again you're seeing strong effects there. So we're excited about that.
Bobby Brooks, Analyst at Northland Capital Markets
Terrific to hear. Appreciate the time and congrats on another great quarter.
Rathi Levesque, Chief Executive Officer and President
Thanks, Bobbi.
Kate, Operator
Your next question comes from Marvin Fong with BTIG. Please unmute and ask your question.
Marvin Fong, Analyst at BTIG
Great. Thank you. And let me add my congratulations on the great performance. Maybe on AOV, you know, obviously doing really well there. Could you just break that down between ASP and UPT and just secondarily it's obviously rising pretty rapidly in value. You know, do you see any sort of, you know, limitations on that, you know, as the ASP potentially kind of reaches out of the reach of some of your buyer population? Just kind of help us understand how to think about that.
Or is it just that luxury in general is just, you know, price appreciation there makes it so that they'll still continue to buy on your platform?
Rathi Levesque, Chief Executive Officer and President
Thanks for that question, Marvin. We've seen a healthy balance between units and price in our growth rate. You know, in recent quarters, you're right, that balance has indexed more towards price and we see that being driven primarily by consumers shifting their mix towards more high-value items. I think when you step back from that dynamic, we cover a wide range in the category of luxury fashion. Right. We have multiple categories and we have a wide range of price points.
And as a marketplace, we're largely agnostic to any shifts within that mix because our monetization and our unit economics are strong. Our assortment—I think it really points to the beauty of our marketplace and how we can quickly move to capitalize on any shifts in trends in luxury fashion. And it's really that flexibility that we would highlight as translating to the durable growth that we've seen in the last few quarters.
Marvin Fong, Analyst at BTIG
Okay, great. And thanks for that. And my second question just on the AI shopping assistant. You know, with most platforms, you know, that would be viewed as positive for conversion. But since you guys already have such high sell-through, you know, can you just kind of help us understand, you know, how that might benefit your P&L, you know, perhaps just by higher consignor satisfaction and faster product velocity? But however you think about it, just help us with how that might manifest itself financially.
Rathi Levesque, Chief Executive Officer and President
Yeah, sure, I'll start and then Ajay, feel free to add on. So how we're thinking about this is, you know, first of all it's about transforming the customer experience, thinking about, you know, where they're headed in general. For us, you know, just more broadly, we're thinking about optimizing TRR for agentic search, for example. I'm confident we are keeping pace and moving with the customer in a lot of ways. So, you know, you heard us say that we're launching a test around conversational shopping in partnership with Google.
That personalization of results gets you the most personalized listing and gets it to the buyer even faster. So that could mean less discounting, discoverability. Right. So we're using AI automatically to enrich the listing for whether it's occasion, collection, trend data, and so making our inventory more discoverable both on and off platform. And so looking at conversion to see what that KPI looks like. But to your point, our sell-through is good, but does that mean less discounting when you're getting the right product to the right buyer even faster?
Ajay Gopal, Chief Financial Officer
Yeah. And maybe to add to that in terms of impact to the P&L, right, it is really about conversion. We have over a million items on our website at any given point in time and tools like conversational search really help that buyer find what they're looking for. You heard us talk about the strong network effects on our platform. As we bring in more buyers onto the platform through investments in helping demand move quicker, we can then convert them into becoming consignors and increase the LTV that they represent to The RealReal.
Marvin Fong, Analyst at BTIG
Okay, terrific. Thanks so much.
Kate, Operator
Your next question comes from Matt Karanda with Roth Capital. Please unmute and ask your question.
Joseph, Analyst at Roth Capital
Hi, this is Joseph on for Matt. Just wanted to see if you guys could touch on guidance here. A pretty big uptick if you look on year-over-year growth transfer, GMV versus the prior back half, prior comps. Just could you talk about what trends you're seeing on either the supplier or demand side that gives the team confidence in the second half outlook, or if there's any notable consumer behavior changes just given the recent months with geopolitical and market volatility?
Ajay Gopal, Chief Financial Officer
Yeah, thank you. Thanks for the question. Q2 was a standout quarter. We delivered an all-time high in GMV and I think more importantly it was our fourth consecutive quarter of about 20% growth. And as we look at sort of what's behind that growth, I would point to a lot of fundamentals, right. Our supply is strong, our strategy towards unlocking supply is working well and we are seeing our advantages compound and drive that growth. Our buyer base is also growing.
We reported 11% trailing 12-month buyers and we are seeing, you know, more of those buyers convert into sellers, 44% versus 40% just a couple of quarters ago. You know, as we look at the second half, these trends, you know, from Q2 and the fact that we have strong line of sight into Q3 give us the confidence to raise our guidance for the year. And that's why you see us taking it up from a midpoint of 15% growth on GMV to now 20% growth for 2026.
Rathi Levesque, Chief Executive Officer and President
To add to that a little bit, you know, as far as supply goes and what gives us confidence in the back half of the year. You know, we talk about consignors being our key component for our supply engine. We're seeing the momentum being quite strong there. But what's exciting is that the growth is coming from now multiple channels simultaneously, right, and so they reinforce each other. And that's, like Ajay just said, what makes our business so durable.
You've got the sales team, you know, our most powerful supply channel. They've got the deep relationships. Supply per sales rep is up 15% per year. And then you've got the professional network for our Real Partners program, which we talked about, and their consign value is up four times per average new consignor. And then you've got the flywheel working as well as some of these other things that we're testing like dropship. And then a quarter of our new consignors coming from stores.
So we have the multiple channels working simultaneously just to really unlock more supply and kind of reinforcing each other.
Joseph, Analyst at Roth Capital
Got it. And then just to, I guess, double click on that, are there any new channels where you're finding more sellers? Can you guys talk about a little bit more on the flywheel there? I know you touched on it, right, just previously, but just want to see what you're thinking about new channels to supply and if there's anything to note there.
Rathi Levesque, Chief Executive Officer and President
Yeah, so I touched on a couple of them. But to get into a little more information there, we can talk about—again, when we talk about channels, we've got our sales team. They also operate Trusts & Estates, right. They're managing relationships that bring us some of the highest-value supply. We've got our professional network through our Real Partners program—so think stylists, real estate agents, closet organizers, and others who already have the trust of luxury consumers.
And that's where we're seeing, you know, they consign four times the value of our average new consigner. You've got our flywheel. So now 44% of our new consignors are coming from our active buyer base in Q2. So you see that go up from 40% just a couple of quarters ago. So our marketing team is working hard and being very successful to acquire buyers who are becoming consignors. The retail locations, like I mentioned—this is the in-person relationship that builds and unlocks, through the kind of trust and community that we have, that really unlocks that high-value product again.
And then dropship, we talked about that briefly as well. It's that asset-light way to bring in supply—fine jewelry, watches, handbags—some of that higher value, some of them from international partners as well. And we like that because of the incremental value that's coming in through there. And we're also opening a couple of new stores, which we discussed as well. So that will bring our count up to 20 by the end of the year.
Joseph, Analyst at Roth Capital
Got it. Thank you for taking my questions.
Kate, Operator
Your next question comes from Mark Alschwager with Baird. Please unmute and ask your question.
Mark Alschwager, Analyst at Baird
Great. Thank you for taking my question. Curious how you're thinking about luxury manager headcount growth from here. Is the plan to increase the growth there or lean on productivity per manager as the Athena intake kind of takes work off their plate? And relatedly, just what does the ramp curve look like on a new hire and how much of the high-value supply that you're winning is coming from your most tenured managers versus some of the newer cohort?
Rathi Levesque, Chief Executive Officer and President
Yes, I can take that one. Thank you for the question. So we plan to grow luxury managers. They grow less than the business does. Of course, we're pushing on both things. We're growing the team, but you're also seeing efficiencies come through. And this is some of the things that we talked about—agentic on the sales side that we're testing, some of the pricing transparency that we're using, Smart Sales, which we talked about in the past. So you're seeing more value come in.
Supply per sales rep is up 15% year to date. So you see us doing both—kind of onboarding new but also finding efficiencies within the team. Now the tenure has also increased pretty significantly, so we're happy about that. You're getting more value there. And then as far as ramp goes, it was, you know, a few months, I'd say a year ago. It's come down a lot because of the tools and now training that we have. So I'd give it about 60 days before they're fully ramped.
Mark Alschwager, Analyst at Baird
Thank you. Follow-up for Ajay—modeling nuance here—but the NMV grew a bit faster than the GMV, implying the return rate or the cancellation rate improved year over year, I think close to 100 basis points. What drove that? Is that purely the mix effect that we're seeing with the higher value or are there other things going on with better imagery on the site or the pricing accuracy with the AI tools? Just anything more on that return rate and where you see that going?
Rathi Levesque, Chief Executive Officer and President
Yeah, thank you for the question. You stole part of my answer there. But yes, we have been working on things to bring down our return rate. Better attribution is key. Better imagery also helps with buyers getting exactly what they're looking for. So those things have been driving, you know, I would say a modest improvement in our return rate, modest downward improvement in our return rate. In Q2 in particular, there's also a lapping effect from what played out last year.
So that's sort of adding to what you called out, which is the growth in NMV for Q2 being, you know, stronger than what you would have expected.
Kate, Operator
Your next question comes from Marnie Shapiro with The Retail Tracker. Please unmute and ask your question.
Marnie Shapiro, Analyst at The Retail Tracker
Hey guys, congrats on a great quarter. The site is great. It's a fun place to doom scroll all night. Can you talk a little bit about are people spending more time on the site directionally? Is that going up or down? And a couple questions even within that. Are you seeing them move from segment to segment, you know, maybe starting in handbags, but moving to dresses or jewelry, things like that. And then I have one more follow up.
Rathi Levesque, Chief Executive Officer and President
Yeah, sure. Hi, Marnie, thanks for the question. Yes, so we do see customers more engaged, especially on the app, or more than 40 hours a year is what they're spending on the app. We do get that comment quite often where they're scrolling the RealReal versus social media. And so we kind of took a look at that and what we're seeing is more of those buyers becoming consignors like we talked about. High value is driving a lot of the growth from a lot of our categories.
So fine jewelry, watches, handbags, ready to wear. And then high value was actually up pretty significantly in the first half of the year. So I'm just even thinking items over $1,000 sold, I think almost up 40% year on year as well. And then we talked a little bit about the Gen Z and millennials growing and just kind of our fastest growing segments there. And could you.
Marnie Shapiro, Analyst at The Retail Tracker
That's fantastic. I'm curious, do you have the ability, once somebody adds something to obsessions, do you have the ability to market to them to increase conversion? Because it would seem that that would be the easiest place to kind of pick them off, for lack of a better word. Do you have the ability to do that? Like what is the conversion rate on obsessions for you guys?
Rathi Levesque, Chief Executive Officer and President
Yes, for sure. So we can see a lot of that, what the customer is doing, kind of how they're behaving, their views, what they're adding to cart, what they may also like, for example. And this really is, at the end of the day, kind of going from having a transactional relationship on our marketplace with our customer to more of an emotional or relational one. Right. So becoming that personal advisor for our customers. Closets through tools like what you're really kind of hinting at is My Closet.
Right. So that price estimator, a seller experience that really deepens over time, the education that we can give them to help them make decisions in the primary market. For example, what is selling well, what is hot, what does hold its resale value, what doesn't. But you know we're set up really well to do this. We're using AI, we're using data to get smarter every quarter. So you've got 15 years of proprietary data on over 50 million items powering our pricing, authentication, search, just the member tools that we have and, you know, we'll continue to evolve this.
Marnie Shapiro, Analyst at The Retail Tracker
That's great. I'll take the rest off for the next call. Thank you so much guys.
Kate, Operator
Your next question comes from Ashley Owens with KeyBanc Capital Markets. Please unmute and ask your question.
Victoria, Analyst at KeyBanc Capital Markets
Hi guys, this is Victoria on for Ashley. I just wanted to double click on Athena and the AI pricing now. So with Athena on track for 50% by year end and AI pricing now fully launched, can you just paint a picture of how the platform is getting smarter every quarter and what changes you're expecting to see with the technology over the balance of the year? I also wanted to ask how it's determining the prices. So if it's looking at a pre-used item versus a drop shipping item in terms of condition, the year, etc.
Ajay Gopal, Chief Financial Officer
Yeah, thanks Victoria, I can take that question. So let me first talk about Athena. So Athena is our proprietary AI-powered intake process. And last year we started from zero and we ended the year with Athena processing about 35% of our items. And we continue to expand that model to now cover up to 50% of items by the end of this year. It really drives efficiencies. It's a key driver behind operating efficiencies in our ops and tech line. And what's key for us to expand that this year is to extend it from low value items, which is where we originally built the models, to now going into mid value and high value items.
We see the results as being multiple dollars per unit coming out from processing cost. It also affects speed, speed to sell, which is very valuable from customer satisfaction. On pricing, you know, just to make sure I got your question. Our pricing algorithm is being applied to all the items on the site. So it covers consignment, it covers items that are coming from dropship as well. What it does is it looks at over, you know, 100 different data points to compute what the price is likely to be.
And we use information like, you know, what's the item category, what is the history that we have on that. There was a question on obsessions. That's a great input into that. We know how many people looked at it as well and what kind of popularity it had. So we use all that information to come up with the pricing. And we have been building this algorithm to first focus on launching price and now it's been extended into managing discounting going forward.
Victoria, Analyst at KeyBanc Capital Markets
Okay, awesome. And then I just wanted to double click on the variance between GMV and total revenue. The gap widened this quarter when I think the guide implied that it would be similar or down from 1Q. I just wanted to ask what's changed relative to your expectations in the quarter and should we still expect this gap to narrow in the second half of the year?
Ajay Gopal, Chief Financial Officer
Yeah, thanks for that question. So the gap between GMV and revenue growth for us is primarily about take rate. And you heard us talk about how we've seen a favorable shift in mix towards higher value items. And when we sell more high value items, those come with a lower percentage take rate but they have strong unit economics, they generate more profit dollars. I mean, to put that in context, you heard Rathi talk about how items above $1,000, sales of those items has increased 36% in the first half and gives you a sense for how that mix is shifting.
Our guidance contemplates the relationship in the second half to be similar to what we are seeing right now. And that's what's implied in the go forward guidance for 2026.
Victoria, Analyst at KeyBanc Capital Markets
Okay, awesome. Thank you and congrats on the quarter.
Ajay Gopal, Chief Financial Officer
Thank you.
Kate, Operator
Your next question comes from Jay Soul with UBS. Please unmute and ask your question.
Jay Sole, Analyst at UBS
Hi, my question is just about what's your updated thinking on the convertible notes, warrant liability, dilution management, and just capital allocation priorities in general as the free cash flow continues to improve.
Ajay Gopal, Chief Financial Officer
Yeah, thanks for that question. You know, we continue to operate a very cash-efficient business model and our priority to keep strengthening our balance sheet by deleveraging is still a focus for us. If you look at the last years, we have reduced our total debt by slightly over $80 million. And we will continue to pursue all options to do that going forward.
Jay Sole, Analyst at UBS
Got it. Okay, thank you so much.
Kate, Operator
Your next question comes from Anna Glaskin with B. Riley Securities. Please unmute and ask your question.
Anna Glaskin, Analyst at B. Riley Securities
Hi, good afternoon. Thanks for taking my question. Just one for me. Wanted to get a little bit more perspective on the growth in above $1,000 items. It sounds like it's a mix of both category as well as mixing up within category. Just any additional perspective would be great. Thanks.
Rathi Levesque, Chief Executive Officer and President
Hi Anna. Yeah, thanks for the question. We're seeing it across the board actually. So fine jewelry, watches, handbags and ready to wear all kind of in that category. I'd say it's driven by some of even the unbranded jewelry that we sell on our site.
Anna Glaskin, Analyst at B. Riley Securities
Got it. Thanks.
Kate, Operator
Your last question comes from Dylan Carden with William Blair. Please unmute and ask your question.
Dylan Carden, Analyst at William Blair
Thanks. I was curious, kind of looking at the guide for the next two quarters, looks like you're into that longer-term algorithm. You speak to low double-digit top line, 150, 200 basis points of margin improvement. And I'm just wondering, is part of that—obviously that's what you've spoken to—but is some of the low hanging fruit on the efficiency side behind you at this point? Because I kind of hear different things on the body language like there's still a lot ahead from an efficiency standpoint, but should we expect maybe a slower pace of margin improvement as you work towards kind of what you expect structural top line to do?
Ajay Gopal, Chief Financial Officer
Yeah, thank you for the question. When you think about our path to expanding EBITDA margins to 15% to 20%, we do see our goal as balancing growth with profitability. We want to make sure that we strike the optimal balance between the two. For us, that represents margin accretion of roughly between 200 to 300 basis points in any given year. Our guidance for this year would imply accretion of 240 basis points, which is right in the middle of that range.
We will continue to manage the business to make sure that we're delivering on both fronts, capitalizing the opportunity in front of us—a $250 billion TAM with us being the market leader in this space—and making sure that we're flowing more of that down to EBITDA.
Dylan Carden, Analyst at William Blair
Okay. And then on the marketing efficiency side, I know it's getting better from just a conversion going after more LTV, higher LTV customers. But are you able to toggle in a way too where your capacity is sort of stimulate buyers to become consignors and vice versa? Is that a muscle that you're able to flex more in the market just from the acquisition side?
Rathi Levesque, Chief Executive Officer and President
Yeah, yeah Dylan. So we are definitely seeing more levers that we can pull on the marketing side. So flywheel and buyers becoming consignors for sure. Getting smarter about going out to the right consignors, quality consignors with higher conversion that's going to have that mid and high value product. So we're definitely making a deliberate investment here and we see real opportunity in front of us as resale adoption is accelerating, that younger consumers are discovering luxury, are graduating to our platform and, you know, kind of see that when you see that kind of opportunity.
We're leaning into that as the ROI is there.
Dylan Carden, Analyst at William Blair
Excellent. Thank you very much.
Kate, Operator
That concludes today's call. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment