US healthcare giant CVS posted rising sales during its first quarter as the acquisitions of Omnicare and Target pharmacies paid dividends.
Like-for-like sales increased 4.2% in the three months ending March 31, driving an 18.9% uplift in net revenues to $43.2bn (£29.8bn).
Sales in the pharmacy services segment increased 20.5%, or $4.9bn (£3.4bn), to $28.8bn (£19.9bn), driven by pharmacy network claim volume and a growth in specialty pharmacy.
Pharmacy network claims processed during the three months rose 22.6%, primarily due to growth in net new business, while retail revenues increased 18.6% to $20.1bn (£13.9bn), driven by the acquisitions of Omnicare last August and Target pharmacies in December.
CVS has made some shrewd moves to adapt to the introduction of Obamacare, formally known as the Patient Protection and Affordable Care Act.
This was always liable to impact on reimbursement rates on medications as more of these drugs are dispensed via government programmes.
To counter this threat, CVS needed to expand its customer base and this is exactly what it has done through two M&A moves made last year.
Omnicare specialises in drug dispensary, primarily for the nursing home sector, a segment unlikely to slow in growth any time soon given the ageing US population.
With CVS already one of the largest prescription drug retailers in the country, the tie-up was a natural fit. Both were highly active participants in Medicare Part D, a federal subsidy scheme for retirees, and now CVS has an even bigger slice of that highly lucrative pie.
The Target acquisition is still to be fully realised, but it seems CVS is already seeing the benefits of placing its operation alongside what is currently a popular and innovative major retail business.
The first such rebrand was only rolled out in February, but has picked up pace through March and April.
It will be interesting to observe how closely CVS and Target align their operations going forward.
Given that Target has developed a strong digital proposition in recent years, CVS may be well placed to make some learnings itself.
Already we have seen the launch of a click-and-collect operation as CVS seeks to make some ground on rival Walgreens’ already advanced online offer.
We may see CVS execute more agile moves as it seeks to shore up margin going forward.
Front-of-store sales of items like food, cosmetics and over-the-counter medicines did show a small 0.7% rise this quarter, but few observers expect front-of-store revenues to drive profitability in the long term.
A greater emphasis on services and new revenue streams will likely be the watchwords for the quarters to come.