Diedrich Coffee Inc. (Nasdaq:DDRX), one of the nation's largest specialty coffee retailers, Friday (2 November) reported results from operations for its first fiscal quarter ended Sept. 19, 2001.

The company continues to implement its previously announced business strategy focused on improving the overall financial performance of the company. Essential components of this strategy include the reduction of indebtedness, a decrease in general and administrative expenses and the elimination of underperforming stores.

Profitability and Operating EBITDA

As a result of the current strategy, the company reported a net loss of $546,000, or $0.11 per share, for the 12 weeks ended Sept. 19, 2001, a 51% improvement, compared with a net loss of $1.1 million or $0.35 per share, for the prior-year period. This improvement resulted primarily from significant reductions in general and administrative expenses and, to a lesser degree, reductions in amortization and interest expenses. Operating EBITDA (which is the company's earnings before interest, taxes, depreciation and amortization, and adding back any provisions for asset impairment or restructuring costs) for the period was $285,000, a slight increase from $276,000 for the prior year quarter.

According to Matthew McGuinness, Diedrich Coffee's chief financial officer, the improvement in Operating EBITDA for the quarter is modest but nonetheless indicates that the management team's restructuring efforts are continuing to show positive results.

Revenue

Total revenue for the 12 weeks ended Sept. 19, 2001, was $14.1 million, a 16.2% decrease, compared with revenue of $16.9 million for the 12 weeks ended Sept. 20, 2000. This decrease consists of a 9.9% decline in retail sales, a 30.2% decrease in wholesale and other revenue and a 16.8% reduction in franchise revenue.

Retail sales from company-operated retail units for the quarter declined by $1.1 million, or 9.9%, to $9.6 million, compared with the prior-year period. Approximately half of this decrease is caused by fewer company-operated locations being open during the quarter as a result of the company's objective of eliminating underperforming stores and franchising some previously company-operated stores. The balance of the reduction was due to a 6.0% decline in comparable company store sales.

Wholesale revenue decreased to $3.3 million for the quarter, down $1.4 million or 30.2% from the prior-year period. Approximately half of this net decrease resulted from the company's decision to discontinue the distribution of lower-margin non-coffee products to its franchisees. Approximately one-third of the decrease resulted from a timing difference in the recognition of revenue from holiday gift basket sales to franchisees. Due to changes in the distribution process, such sales were recorded in the second fiscal quarter rather than the first fiscal quarter as occurred last year. Most of the remainder of the decrease is attributable to a decline in coffee sales to franchisees, recorded as wholesale revenue, due to the closure of underperforming Gloria Jean's franchise units since the prior-year period and declining comparable store sales.

Franchise revenue for the first fiscal quarter was $1.2 million, a decline of $248,000 or 16.8% from the first quarter last year, primarily due to lower initial franchise fees and franchise renewal fees as a result of fewer franchise agreements being signed.

Comparable Store Sales

Systemwide comparable store sales at Diedrich Coffee brand coffeehouses open at least one year declined 3.6% for the quarter, compared with the same period last year. Comparable store sales at the company's Coffee People and Coffee Plantation coffeehouses declined 6.4% and 6.7%, respectively, during the first quarter.

As previously announced, Diedrich Coffee completed the sale of 12 of its Coffee Plantation units in Phoenix, on Oct. 3, 2001. Under the terms of the sale, Diedrich Coffee will remain the exclusive coffee supplier for Coffee Plantation. The company continues to operate five Coffee Plantation locations.

Systemwide comparable store sales at Gloria Jean's units declined 3.9% during the first quarter, compared with the same period last year.

Commenting on the trends seen in comparable store sales, J. Michael Jenkins, the company's chief executive officer, noted: "While we obviously are not pleased by the trends over the last several quarters, we are not surprised by them either. As we have previously announced, our focus has been on debt reduction and improved financial performance. As a result, we have virtually eliminated all discretionary expenses related to advertising and store remodeling, which typically contribute to positive store sales trends."

About Diedrich Coffee

With headquarters in Irvine, Diedrich Coffee specializes in sourcing, roasting and selling the world's highest quality coffees. The company's two primary brands are Diedrich Coffee, with retail coffeehouses primarily in California, Colorado and Texas, and Gloria Jean's Coffees, the nation's leading retail chain of mall-based coffee stores. The company's 382 retail outlets, the majority of which are franchised, are located in 37 states and 11 foreign countries. Diedrich Coffee also sells its coffees through more than 375 wholesale accounts including office coffee service distributors, restaurants and specialty retailers, and via mail order and the Internet. For more information about Diedrich Coffee, call 800/354-5282, or visit the company's Web sites at www.diedrich.com and www.gloriajeans.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 ability to properly manage the repayment of the company's indebtedness, the successful management of Diedrich Coffee's growth strategy, the 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 27, 2001.

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

OPERATIONS DATA:                        12 Weeks Ended  12 Weeks Ended
                                        Sept. 19, 2001  Sept. 20, 2000

Retail sales                                $ 9,610       $ 10,666
Wholesale and other revenue                   3,301          4,729
Franchise revenue                             1,229          1,477
Total revenue                              $ 14,140       $ 16,872

Cost of sales and related occupancy costs   $ 6,984        $ 8,451
Operating expenses                            4,759          5,041
Depreciation and amortization                   671          1,039
General & administrative expenses             2,110          3,104
Loss on asset disposals                           2              -
Total expenses                             $ 14,526       $ 17,635

Operating loss                              $  (386)      $   (763)
Interest expense and other income, net         (160)          (346)

Loss before income taxes                    $  (546)      $ (1,109)
Income tax provision                              -              3

Net loss                                    $  (546)      $ (1,112)

Basic and diluted net loss per share:       $ (0.11)      $  (0.35)

Weighted average shares outstanding:
   Basic and diluted                          5,161          3,161


BALANCE SHEET DATA:
                                               Sept. 19,      June 27,
                                                 2001           2001

Cash and equivalents                           $ 1,785        $ 3,063
Accounts receivable, net                         1,856          1,718
Other assets                                    27,568         27,110
Total assets                                  $ 31,209       $ 31,891

Accounts payable                               $ 2,925        $ 2,239
Current portion of long-term debt                5,243          2,040
All other current liabilities                    5,634          6,091
Long-term debt                                       -          3,503
Other liabilities                                1,362          1,405
Stockholders' equity                            16,045         16,613
Total liabilities and stockholders' equity    $ 31,209       $ 31,891