Diedrich Coffee, Inc. Announces First Quarter Fiscal 1998 Results and Provides Update on Progress.

IRVINE, Calif.--(BUSINESS WIRE)--June 6, 1997--Diedrich Coffee, Inc. (NASDAQ:DDRX) announced today the Company's results from operations for the first quarter of fiscal 1998 ended April 30, 1997.

Net sales for the first quarter of fiscal 1998 were $5.9 million, compared to net sales of $4.3 million for the first quarter of fiscal 1997. As previously announced, principally as a result of store closings, the net loss for the quarter was $5.4 million, or $(1.00) per share on 5,391,650 weighted average shares outstanding. Retail sales increased to $5.4 million for the first quarter, up from $3.9 million in the same period in fiscal 1997. Wholesale and mail order sales increased to $483,000, up from $373,000 during the first quarter of fiscal 1997. Comparable store sales (stores open for at least one year, which includes only 12 coffeehouses operating at the end of the first quarter of fiscal 1998 with annual revenues of approximately $850,000 each) decreased 5.1% for the quarter compared to the same period last year.

Diedrich Coffee closed three coffeehouses during the first quarter. As the Company previously announced, it plans to close a total of 12 under-performing coffeehouses during fiscal 1998, bringing to 36 the total number of coffeehouses that will remain open. In the first quarter of fiscal 1998, the Company took a one-time charge of $4.6 million as a result of restructuring costs and the impairment of assets from store closings.

Also during the first quarter, the Company began to develop several new initiatives that are intended to increase Diedrich's brand equity. Among these new initiatives are the use of alternate retail venues such as kiosks, carts and smaller coffeehouses, as well as a program of full image co-branding with selected strategic partners.

"Given our restructuring and store closings during the first quarter of fiscal 1998, we are relatively pleased with the progress we've made toward identifying and correcting infrastructure problems at Diedrich Coffee," said Lawrence Goelman, Chairman and interim CEO at Diedrich. "We continue to move forward with our plan and, as of today, we have closed eight of the twelve stores previously designated for closure. In addition, we plan to open alternate points of distribution, and build the business by expanding prudently from our existing core markets in Southern California, Denver, and Houston. We are working hard to restore the Company to profitability, having achieved positive cash flow from retail operations. We remain confident in the consistent superior quality of our product."

Update On The Company's Progress

"We are excited about the early indications on our summer `Cool Coffee' promotion. It appears that customers are enjoying the new shakes, sundaes and iced drinks," said Mr. Goelman. "The Company has recently hired three new senior managers to build retail and wholesale revenues and to focus on reducing our cost structure. In addition, the Company is in negotiations with several potential strategic partners to explore the `co-branding' opportunities in their markets. We remain cautiously optimistic about this new revenue stream for the Company. Finally, management is in negotiations with several of the Company's stockholders to increase their previous $1 million line of credit commitment to approximately $3-4 million."

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. The Company's 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 price and availability of coffee and other raw materials, successful execution of the company's expansion plans, impact of competition, the availability of additional financing and other risks and uncertainties described in detail under "Certain Factors and Trends Affecting Diedrich Coffee and Its Business" in the Company's annual report on Form 10-K for the fiscal year ended January 29, 1997, and in the Company's 10-Q. Copies of the annual report are available from Diedrich Coffee's investor relations representatives. -0-

                       DIEDRICH COFFEE, INC.
                       SUMMARY OF OPERATIONS
                           (Unaudited)

                                  Thirteen Weeks     Thirteen Weeks
                                  Ended April 30,     Ended May 1,
                                       1997               1996


Retail sales                        $5,384,625         $3,901,997
Wholesale and other                    483,095            372,733
Net sales                            5,867,720          4,274,730

Cost of sales and related
 occupancy costs                     3,041,815          1,772,892
Store operating expenses             2,380,227          1,734,879
Other operating expenses                64,325             59,320
Depreciation and amortization          447,439            153,925
Provision for store closings
 and restructuring costs             4,550,068               --
General and administrative
 expenses                              774,325            337,375
   Total                            11,408,856          4,058,391

Operating income (loss)             (5,390,479)           216,339
Interest expense                         --               (38,841)
Interest and other income                7,660              1,264

Income (loss) before income
 taxes                              (5,382,819)           178,762
Income tax provision                     --                71,649

Net income (loss)                  $(5,382,819)          $107,113

Net income (loss) per share             $(1.00)

Weighted average common shares
 outstanding                         5,391,650

CONTACT: Diedrich Coffee, Inc.

Lawrence Goelman, Chairman

Kerry Coin, President & Chief Operating Officer

714/260-1600

or

Coffin Communications Group, Inc.

William F. Coffin, President

Rachel E. Reynolds, Partner

818/789-0100