Diedrich Coffee Inc. (Nasdaq:DDRX), the nation's second largest specialty coffee retailer, Friday reported results from operations for the second fiscal quarter ended Dec. 13, 2000.

Revenues

Total revenues for the 12 weeks ended Dec. 13, 2000 increased 1.4% to $19.4 million, versus revenues of $19.1 million for the 12 weeks ended Dec. 15, 1999.

Retail revenues for the 12 weeks ended Dec. 13, 2000 increased 5.5% to $11.6 million compared with $11 million for the same period in the prior year.

Wholesale and other revenues for the most recent quarter did not materially change from $6.1 million for the 12 weeks ended Dec. 15, 1999. Franchise revenues decreased 14.7% to $1.8 million for the 12 weeks ended Dec. 13, 2000 from $2.1 million for the 12 weeks ended Dec. 15, 1999.

Increased wholesale sales were offset by a decrease in sales to Gloria Jean's franchisees, due to a decline in the number of Gloria Jean's franchise units.

Profitability

The company reported net income of $163,577, or $0.01 per share, for the 12 weeks ended Dec. 13, 2000 compared with net income of $599,028, or $0.05 per share, for the 12 weeks ended Dec. 15, 1999.

The decrease in net income versus the prior year quarter resulted from lower same store sales, and increases in general and administrative expense, store operating expense and depreciation.

Store operating expenses increased primarily due to higher labor costs, including higher wage rates, increased staffing levels and the cost of providing a more competitive benefits package to company-owned store level employees. Depreciation expense increased as a result of six new coffeehouses opened during the latter part of fiscal 2000 and the acquisition of roasting plant equipment.

During the 12 weeks ended Dec. 13, 2000, the company recorded a $220,000 charge for its liability under a guarantee of an equipment lease for a former area developer. The company also recorded a charge of $197,000 for the anticipated costs associated with the termination of six coffeehouse leases it is not developing.

In this same period, the company reversed $424,000 of reserves for store closures, franchisee sublease defaults and legal fees which were primarily established under purchase accounting during the acquisition of Coffee People.

Same Store Sales

Same store sales at Diedrich Coffee coffeehouses open at least one year increased 1% for the quarter, as compared with the same period last year. Second quarter same store sales at the company's Coffee People and Coffee Plantation coffeehouses declined 9% and 11.3%, respectively.

Systemwide same store sales at Gloria Jean's units declined 3.8% during the second quarter compared with the same period last year.

Franchise Development Agreements

Diedrich Coffee currently has four franchise area development agreements in effect to develop 214 Diedrich Coffee brand coffeehouses. Diedrich Coffee anticipates the termination of two additional franchise area development agreements in the current fiscal year, which would reduce the number of franchised coffeehouses to be developed pursuant to existing area development agreements to 84.

Restructuring

On Jan. 9, 2001, Diedrich Coffee announced its plan to relocate Gloria Jeans' administrative support center from Castroville, Calif. to the company's Irvine headquarters to more efficiently provide support to franchisees of its Gloria Jean's subsidiary.

Sourcing, roasting and distribution of coffee for all Diedrich Coffee subsidiaries will continue to be conducted at the Castroville roasting facility. Simultaneously, Diedrich Coffee restructured certain functions in its Irvine headquarters, including the elimination of a number of positions.

On a cumulative basis, during the current fiscal year, a total of 31 positions at the company have been eliminated, including the position of President of Gloria Jean's.

Projected annualized savings of approximately $3.1 million are expected as a result of these actions and other discretionary cost saving measures taken since the beginning of the fiscal year.

At the same time, the company also reserved for the cost of closing certain underperforming company-operated locations in each of the company's four brands. There will be a third quarter charge of approximately $1.8 million to $2 million resulting from these actions.

Other Developments

The company is in discussions with one or more potential equity investors. While there is no assurance that a capital raising transaction will be completed, the company has retained the services of a national investment banking firm, Houlihan Lokey Howard & Zukin, to assist the company and to render a fairness opinion in connection with any equity investment.

As previously announced, the company is continuing its discussions with Nasdaq regarding the possible delisting of the company's common stock.

On Jan. 18, 2001, Diedrich Coffee received a formal notice of deficiency from Nasdaq indicating that within the next 90 days, the company's stock price must maintain a $1.00 minimum bid price for ten consecutive days. If this condition is not met, Nasdaq will commence the delisting process from the Nasdaq National Market.

On Jan. 26, 2001, Diedrich Coffee received a Nasdaq Staff Determination indicating that the company fails to comply with the minimum net tangible assets requirement for continued listing set forth in Marketplace Rule 4450(a)(3), and that its securities are, therefore, subject to delisting from the Nasdaq National Market.

In light of the discussions with potential equity investors, the company intends to request a hearing before a Nasdaq Listing Qualifications Panel to review the Staff Determination and the company's plan to achieve compliance with the listing requirements.

The hearing request will stay any delisting of the company's securities pending the Panel's decision. However, there can be no assurance that the Nasdaq Listing Qualifications Panel will grant the company's request for continued listing.

About Diedrich Coffee

Diedrich Coffee Inc. is the nation's second largest retailer in the specialty coffee market with annual system-wide revenues in excess of $150 million through 381 retail locations in 37 states and 10 foreign countries. The company's primary brands are Diedrich Coffee brand coffeehouses and Gloria Jean's Coffees, the nation's leading chain of mall-based coffee stores.

With headquarters in Irvine, Diedrich Coffee specializes in sourcing and custom roasting the world's highest quality coffees and offering them to customers through its coffeehouses and mall stores and via wholesale, mail order and its website. For more information about Diedrich Coffee, call 800/354-5282, or visit the company's website at www.diedrich.com.

Forward-Looking Statements

Statements in this news release that relate to future plans, financial results or projections, events or performance are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and fall under the safe harbor. Actual results and financial position could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including but not limited to, the successful management of Diedrich Coffee's growth strategy, impact of competition, the availability of working capital and other risks and uncertainties described in detail under "Risk Factors and Trends Affecting Diedrich Coffee and its Business" in the company's annual report on form 10-K for the fiscal year ended June 28, 2000.

                         DIEDRICH COFFEE, INC.
              SELECTED CONSOLIDATED FINANCIAL INFORMATION
              ($ in thousands, except per share amounts)

OPERATIONS        Twelve        Twelve      Twenty-Four   Twenty-Four
 DATA:          Weeks Ended   Weeks Ended   Weeks Ended   Weeks Ended
                  Dec. 13,     Dec. 15,       Dec. 13,     Dec. 15,
                   2000          1999          2000          1999

Retail
 revenues           $11,573       $10,972       $22,239       $21,435
Wholesale and
 other revenues       6,074         6,107        10,803        10,741
Franchise
 revenues             1,753         2,054         3,230         3,229

Total revenues       19,400        19,133        36,272        35,405

Cost of sales
 and related
 occupancy costs      9,480         9,637        17,927        17,597
Store operating
 expenses             4,638         4,423         9,260         8,602
Operations
 management           1,288         1,459         2,588         2,695
Depreciation and
 amortization         1,066           832         2,104         1,639
General &
 administrative
 expenses             2,365         1,897         4,593         4,149

Total expenses       18,837        18,248        36,472        34,682

Operating income
 (loss)                 564           885          (199)          723
Interest expense       (357)         (327)         (716)         (614)
Interest and other
 income (expense)       (26)           50           (14)          117


Income (loss)
 before income taxes    181           608          (929)          226
Income tax provision     17            10            20            17

Net income (loss)      $164          $598         ($949)         $209

Basic net income
 (loss) per share:    $0.01         $0.05        ($0.08)        $0.02

Diluted net income
 (loss) per share:    $0.01         $0.05        ($0.08)        $0.02

Weighted average
 shares outstanding:
     Basic           12,645        12,616        12,645        12,319
     Diluted         12,645        13,267        12,645        13,052


BALANCE SHEET DATA:
                                          Dec. 13, 2000  June 28, 2000

Cash and equivalents                             $1,094         $2,944
Accounts receivable                               4,504          2,359
Other assets                                     33,376         35,027

Total assets                                    $38,974        $40,330

Current liabilities                             $15,718        $14,244
Other liabilities                                $9,083         10,965
Stockholder's equity                             14,173         15,122

Total liabilities and stockholder's equity      $38,974        $40,330