Diedrich Coffee Reports Narrower Loss for Quarter

Diedrich Coffee Inc. will report a narrower fiscal first-quarter loss than analysts expected, derived mostly from factors related to its acquisition of larger Coffee People Inc. this summer.

Revenue more than doubled as a result of the acquisition but came in just shy of analysts’ estimates, said Tim Ryan, president and chief executive of the Irvine-based company.

Ryan said Diedrich will post a loss of about $400,000, or about 3 cents a share, for the first quarter ended Sept. 30, compared with a loss of 10 cents a share in the comparable year-ago period. Analysts polled by First Call/Thomson Financial expected a loss of 4 cents for the first quarter. Revenue of $16.3 million will surpass revenue of $6 million in the year-ago quarter. Although revenue was slightly below analysts’ estimates of $16.5 million, Ryan said sales at Diedrich-branded stores open at least a year, a key industry indicator, were positive.

Same-store sales at Diedrich outlets rose 6.1%. At Gloria Jean’s, a mall-based coffee chain that was part of Coffee People, same-store sales grew 4%.

The Coffee People and Coffee Plantation brands that were also part of the Coffee People acquisition are being converted to Diedrich.

A new marketing program and retraining of employees led to more frequent visits by customers, Ryan said.

Diedrich’s acquisition in July of Coffee People, a profitable regional chain based in Castroville, helped boost Diedrich’s earnings, as did cost savings resulting from the merger, Ryan said.

For example, the consolidation of roasting at Coffee People’s ultra-modern facility in Castroville lowered roasting costs by more than 25 cents a pound, Ryan said. Additionally, prices for supplies were cheaper because the chain increased the size of its orders.

Diedrich is attempting to build itself into the second-leading specialty-coffee chain behind Starbucks Corp. by emphasizing its traditional coffeehouse environment in contrast to Starbucks’ grab-and-go orientation, Chairman John Martin said.

Diedrich is also focusing on suburban locations, he said, but the company isn’t shopping for any more large acquisitions like Coffee People.

Diedrich has been signing large franchise agreements that will increase the number of stores by 477 units during the next five years, Ryan said.

Diedrich has 80 company-owned coffeehouses and 25 company-owned Gloria Jean’s stores, plus two franchised Diedrich units and 255 franchised Gloria Jean’s.