111, Inc. Delivers Improved Efficiency Despite Revenue Dip—Key Operational Metrics Show Resilience

Operating Expense Reduction Highlights Efficiency Gains

111, Inc. (NASDAQ:YI) maintained operational profitability and positive operating cash flow for the first half of 2025, according to its newly released Q2 financials. The company continued to rein in costs, reporting total operating expenses of RMB185.3 million (US$25.9 million)—a notable 9.3% reduction year-over-year. As a percentage of net revenues, operating expenses dropped by 20 basis points to 5.8%, demonstrating progress on cost management and operational discipline in a demanding market environment.

Revenue and Profit Margins Decline, but Operational Profitability Sustained

Net revenues for Q2 stood at RMB3.21 billion (US$447.5 million), representing a 6.4% decline year-over-year. Segment profits in both the B2B and B2C businesses also trended downward, yet 111, Inc. stayed in the black operationally:

Income from operations in Q2 was essentially flat at RMB0.1 million (US$0.01 million), compared to RMB3.3 million a year earlier. Non-GAAP income from operations—excluding share-based compensation—was RMB3.0 million (US$0.4 million), down from RMB8.5 million in Q2 2024. These numbers reinforce that while overall revenues and segment profit margins shrank, core operations stayed profitable.

Digital Strategy Drives Volume and Reach Amid Margin Pressure

Even as margins compressed, 111, Inc.'s digital-first strategy is paying dividends. Marketing promotional products revenue jumped 53.6% year-over-year, and customer count rose by 19.0%. The company’s general agency model saw rapid monthly sales growth, and its supply chain project, 'MANTIANXING', now has 19 fulfillment centers nationwide. Inventory value from the initiative reached RMB355 million in Q2, with Gross Merchandise Value up 58.2% versus Q1—underscoring growing logistics scale.

Net Loss Widened, but Liquidity Remains Solid

111, Inc. posted a net loss of RMB7.3 million (US$1.0 million) for the quarter, versus a RMB2.1 million loss a year ago. On a non-GAAP basis, the loss was RMB4.4 million. The company's net loss attributable to ordinary shareholders was RMB19.5 million (US$2.7 million), compared to RMB14.0 million a year prior.

Despite these losses, cash, restricted cash, and short-term investments remained strong at RMB513.1 million (US$71.6 million) as of June 30, 2025. Management also disclosed that payment agreements have been reached to phase out redemption requests from 2020 investors in 1 Pharmacy Technology, supporting longer-term liquidity planning.

Cost Management and Digital Scale Offer Foundation for Growth

The disciplined cost approach—marked by a significant cut in selling and marketing expenses (down 17.7% YoY) and technology expense (down 19.0%)—provides a buffer as revenues fluctuate. Meanwhile, investments in digital infrastructure and AI-driven supply chain upgrades point to a continued focus on technology leadership.

In a statement, CEO Junling Liu highlighted resilience against macro headwinds, citing not just operational profitability but expanding reach, logistics scale, and the ability to adapt payment obligations—elements essential to the company's long-term ambitions in China’s competitive healthcare market.

Key Takeaway: Operational Profitability Persists Despite Top-Line Headwinds

While year-over-year revenue and margin declines remain a challenge, 111, Inc. managed to stay operationally profitable through tighter cost controls and the continued success of digital and logistics initiatives. For investors, the numbers highlight both the hurdles ahead and the underlying strategic momentum supporting the business's transition to greater digital scale and efficiency. This balance of resilience and innovation could warrant further monitoring as the company presses forward in the second half of 2025.

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