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Rite Aid, CVS Are Looking Healthy, Wealthy, Wise With Wellness

NEW YORK (TheStreet) -- Rite Aid Corp (RAD - Get Report) and CVS Caremark (CVS - Get Report) have pivoted to "wellness" -- out with the cigarettes, in with healthy living. Major U.S. drugstore chains are improving wellness offerings in significant ways. And Rite Aid and CVS in particular are looking to help the bottom line with the new policies.

Following Rite Aid's breakout year in 2013, profits have rolled in and the stock price has skyrocketed. As of 10 a.m. Wednesday, Rite Aid was at $7.10, up nearly 40% year to date and 151% over the past 52 weeks. First-quarter revenue increased 3% to $6.5 billion, up from $6.3 billion in the first quarter.

Expanding pharmacy and clinical services and the remodeling of Rite Aid's and CVS's wellness stores could provide the innovative wellness offerings that consumers seek. Will this help stockholders too?

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Rite Aid's revamped Wellness Store on North Canon Drive in Beverly Hills gives an example of what Rite Aid's future remodels may look like. The company is rolling out a "Fresh Day Cafe" that serves fresh coffee, pastries, breakfast sandwiches and Rite Aid's own Thrifty ice cream. The company also plans to add more educational material and new merchandising.

Rite Aid plans to expand these Wellness Stores over the next several years, with a focus on holistic health care.

Rite Aid's acquisition of RediClinic sets the company up to push back against larger competitor, CVS, which also operates in-store Minute Clinics at some stores. Rite Aid's number of prescriptions filled in stores open at least a year climbed 2.3% from a year ago. And Rite Aid is now engaged in site selection, adding its first RediClinics to existing and new stores.

CVS made a splash with its announcement that it is phasing out cigarettes, cigars and chewing tobacco in 7,600 stores nationwide by Oct. 1. Rite Aid has responded by strengthening its smoking cessation program.

At Rite Aid's first-quarter corporate earnings call last Thursday, John Standley Chairman and CEO stated to Deutsche Bank Analyst Karru Martins, "We have got a lot of our customers and patients that are currently buying tobacco products and for whatever personal reason they have, they have made that decision and at this point, we think that we can probably deliver the -- a great solution for those customers when they decide to quit smoking."

Meanwhile, the pharmacy field is shifting more to big chains. Regional players and smaller grocery stores with pharmacies  have been getting out of the business as reimbursement rate pressure rises.

Frank Vitrano, Rite Aid's SEVP and CFO said to Karru Martins, "We have seen some small chains, three or four or five store -- grocery stores that decided to either close or get out of the business. Those have been some of the opportunities."

Recent profit growth at Rite Aid has been paving the way for financial improvements. Same-store sales increased 3.1% in the quarter, reflecting a higher pharmacy script count and the inflation rate.

Goldman Sachs reissued its buy rating of Rite Aid earlier this month with a price target of $8.00, up from $5.00. Analyst Robert P. Jones said, "Despite the 80% move in the stock (vs. S&P 11%) since September 2013, we still see upside in the company's turnaround."

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