Diedrich Coffee, Inc. (Nasdaq:DDRX) -- one of the nation's largest retailers in the specialty coffee market, today reported its fourth quarter and fiscal year financial results for the period ended June 27, 2001.

Revenue

Total revenue for the sixteen week fiscal quarter ended June 27, 2001 was $20.1 million, a 9.7% decrease compared to the prior year period; revenue for the current fiscal year was $72.2 million, down 2.6% from the prior year. Retail sales from company operated coffeehouses were $13.5 million for the quarter, down 16.2% compared to a year ago, while full year retail sales declined 2.9% to $46.9 million. Wholesale and other revenue increased 1.8% to $4.7 million for the quarter, while full year Wholesale and other revenue decreased 2.8% versus the prior fiscal year, to $18.5 million. Franchise revenue increased 22.5% to $1.9 million for the quarter, while Franchise revenue for the current year remained flat at $6.8 million.

The decline in company operated coffeehouse retail sales resulted primarily from negative comparable store sales growth in the company's Coffee People and Coffee Plantation brands, and from the transfer of nine company operated coffeehouses in Colorado and Texas to franchisees during the current year. Increased wholesale sales to office coffee service distributors were offset by a decrease in coffee sales to Gloria Jean's franchisees, due to a 17 unit decline in the number of domestic Gloria Jean's franchise units. Franchise revenue increased significantly in the latest quarter because of higher initial franchise fees in the current year quarter compared to a year ago.

Comparable Store Sales

Comparable store sales for Gloria Jean's domestic units, including both company and franchise operated locations, increased 0.2% during the most recent fiscal year versus a year ago, and declined 0.8% for the quarter. There were 196 domestic Gloria Jean's units operating as of June 27, 2001.

Comparable store sales at Diedrich Coffee retail locations open at least a year declined 1.2% for the 2001 fiscal year compared with 2000. Comparable store sales declined 2.0% for the quarter compared to the same period a year ago. At the company's Coffee People and Coffee Plantation retail locations, comparable store sales declined 9.7% and 9.3%, respectively for the fiscal year, and 9.0% and 4.2% for the quarter. There were 40 Diedrich Coffee retail locations operating at June 27, 2001, and 25 and 17 Coffee People and Coffee Plantation locations, respectively, operating on this same date.

Profitability and Operating EBITDA

Diedrich Coffee posted a net loss of $2.4 million for the quarter and $4.0 million for the fiscal year, representing a net loss of $.59 and $1.16 per diluted share for the quarter and year ended June 27, 2001, respectively. These per share losses compare to net losses of $7.20 and $7.19 for the quarter and year ended June 28, 2000, respectively. At June 27, 2001, Diedrich Coffee had 5.2 million shares outstanding.

Management uses Operating EBITDA as a principal metric in evaluating the performance of the company. (This metric is defined as earnings before interest, taxes, depreciation and amortization, adding back any provisions for asset impairment or restructuring costs.)

According to Matthew C. McGuinness, Chief Financial Officer for Diedrich Coffee, the company's primary focus over the past year has been to strengthen its financial position with particular emphasis on improving cash flow and reducing debt. ``Our Operating EBITDA of over $4.6 million in fiscal 2001 represents a $5.3 million improvement over a negative Operating EBITDA of $615,000 in fiscal 2000. In addition, we have paid down over $5.1 million of bank debt during this same period,'' said McGuinness.

As of June 27, 2001 the Company had $3.1 million in cash and $5.5 million in bank debt, compared to $2.9 million in cash and $10.7 million in bank debt on June 28, 2000. These bank debt figures represent total bank debt including both the current and long term components on its balance sheet. The company's net loss figures include $2.1 million and $2.9 million in asset impairment and restructuring charges during the quarter and year ended June 27, 2001, respectively, compared to $16.4 million for the quarter and for the year ended June 28, 2000. Operating EBITDA before these charges was $1.2 million and $4.6 million for the quarter and year ended June 27, 2001, respectively, compared to a negative $4.5 million and a negative $0.6 million for the quarter and year ended June 28, 2000, respectively.

Recent Developments

During June 2001 Diedrich Coffee entered into a letter of intent to sell eight coffeehouses in Phoenix, Arizona, and certain related intangible assets. Under the terms of the sale, which is anticipated to close before the end of October 2001, the buyers will also assume operation of four additional coffeehouses on a sublease basis. After the sale Diedrich Coffee will continue to operate five other retail locations under the Diedrich Coffee or Coffee Plantation brands. The buyers will execute a long-term supply agreement under which Diedrich Coffee will be the exclusive wholesale coffee supplier for all Coffee Plantation units acquired or developed by the buyers. A portion of the net proceeds from the transaction will be used to reduce bank debt.

Diedrich Coffee recorded an asset impairment charge of $2.1 million during the fourth quarter of fiscal 2001, primarily to reduce the carrying value of its Arizona assets.

About Diedrich Coffee, Inc.

Diedrich Coffee, Inc. is one of the nation's largest retailers in the specialty coffee market with annual system-wide revenues in excess of $150 million annually through 373 retail locations in 37 states and eleven foreign countries. The Company's primary brands are Diedrich Coffee coffeehouses and Gloria Jean's Coffees, the nation's leading chain of mall-based flavored coffee stores.

Headquartered in Irvine, Calif., 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 and Gloria Jean's Coffee, call 800/354-5282, or visit the Company's websites at www.gloriajeans.com and 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 and 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 27, 2001.

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

OPERATIONS DATA:      Sixteen      Sixteen     Fifty-Two    Fifty-Two
                    Weeks Ended  Weeks Ended  Weeks Ended  Weeks Ended
                      June 27,     June 28,     June 27,     June 28,
                        2001        2000         2001          2000
                   ---------------------------------------------------
Retail sales          $ 13,481    $ 16,080     $ 46,925     $ 48,308
Wholesale and
 other revenue           4,705       4,620       18,545       19,081
Franchise revenue        1,944       1,587        6,770        6,813
                   ---------------------------------------------------
Total revenue         $ 20,130    $ 22,287     $ 72,240     $ 74,202
                   ---------------------------------------------------

Cost of sales and
 related occupancy
 costs                $  9,979    $ 12,971     $ 35,705     $ 38,112
Operating expenses       6,308       7,403       20,827       20,671
Depreciation and
 amortization            1,259       1,483        4,445        4,331
General & administrative
 expenses                2,996       6,475       11,232       16,058
Asset impairment and
 restructuring costs     2,087      16,370        2,867       16,370
(Gain) loss on
 asset disposals          (373)        (22)        (173)         (24)
                   ---------------------------------------------------
Total expenses        $ 22,256    $ 44,680     $ 74,903     $ 95,518
                   ---------------------------------------------------

Operating loss          (2,126)    (22,393)      (2,663)     (21,316)
Interest expense, net     (281)       (319)      (1,289)      (1,089)
                   ---------------------------------------------------
Loss before
 income taxes         $ (2,407)   $(22,712)    $ (3,952)    $(22,405)
Income tax provision         -           1           36           19
                   ---------------------------------------------------
                   ---------------------------------------------------
Net loss              $ (2,407)   $(22,713)    $ (3,988)    $(22,424)
                   ===================================================
Basic and Diluted
 net loss per share:  $  (0.59)   $  (7.20)    $  (1.16)    $  (7.19)
                   ===================================================

Weighted average
 shares outstanding:
    Basic and Diluted    4,054       3,154        3,436        3,120



BALANCE SHEET DATA:
                                 June 27, 2001      June 28, 2000
                                ----------------------------------
Cash and equivalents              $  3,063            $  2,944
Accounts receivable, net             1,718               2,359
Other assets                        27,110              35,027
                                ----------------------------------
Total assets                      $ 31,891            $ 40,330
                                ==================================

Accounts payable                  $  2,239            $  6,393
Current portion of
 long-term debt                      2,040               1,075
All other current
 liabilities                         6,091               6,776
Long-term debt                       3,503               9,592
Other liabilities                    1,405               1,373
Stockholder's equity                16,613              15,121
                                ----------------------------------
Total liabilities and
 stockholder's equity             $ 31,891            $ 40,330
                                ==================================