Diedrich Has First Profitable Quarter Since Going Public
Diedrich Coffee Inc., benefiting from a boost in business at existing coffeehouses and a major acquisition, posted its first profitable quarter Thursday since going public more than three years ago.
But the Irvine-based chain’s improved performance and ambitious plans to establish coffeehouses across the nation has so far failed to impress Wall Street. The company’s stock has lost about half of its value since late June, hitting a 52-week low of $3.44 a share earlier this month. The shares closed Thursday at $3.88, up 13 cents, in Nasdaq trading.
The company said it earned $599,000 in the fiscal second quarter as revenue tripled. The company attributed the increase to its acquisition of a larger rival, Coffee People Inc., as well as a 5.4% sales increase at Diedrich stores that had been open at least a year.
Analysts said the company finally appears poised for growth after years of struggling. Diedrich Coffee had rung up losses of $15 million since late 1996, the biggest hit coming in 1998 when the company had to write off 12 underperforming stores.
“It has taken a little longer than they had planned, but they are definitely on the right track,” said Eric Wold, an analyst for First Security Van Casper in San Francisco. “They had been losing money for three years, and it was a concern with investors that this couldn’t last and they would run out of cash.”
But the quarterly profit, improved same-store sales and the prospect of opening more units indicates “they have everything working right,” Wold added.
Wold also predicted that the company’s struggling stock would soon rise.
“I think investors are finally taking a second look at it,” he said.
For the second quarter, the profits of $599,000 equaled 5 cents a share. A year earlier, the company posted a loss of $447,000, or 8 cents a share. Revenues increased to $19.1 million from $6.2 million.
In July, Diedrich acquired Coffee People Inc., a profitable regional chain based in Castroville, Calif., that included Gloria Jean’s, a mall-based coffee chain, as well as the Coffee People and Coffee Plantation brands, which are being converted to Diedrich. Gloria Jean’s sales rose 8.9% during the quarter.
Diedrich is attempting to build itself into a competitive No. 2 specialty-coffee chain behind Starbucks Corp.
The chain plans to open 1,200 to 1,500 new coffeehouses over the next five to seven years through franchise agreements. In the last year, Diedrich signed a series of these agreements to open 477 new coffeehouses. The first two stores under these agreements are scheduled to open in April on the East Coast. Diedrich executives said Thursday that they hope to open 12 to 15 more stores outside of Southern California be the end of the fiscal year in June. Most of those would be company-owned.
Diedrich currently has 11 stores outside California--seven in Colorado and four in Texas. Those stores experienced an 11.4% increase in second-quarter sales.
Last week, the company signed an agreement with New England Coffeehouses LLP, based in Avon, Conn., to open 50 Diedrich coffeehouses in Connecticut, Massachusetts and upstate New York.
Diedrich executives said Thursday that they hope to secure at least 15 more development agreements with experienced franchisers. The agreements call for the franchisers to open a specific number of stores each year, with the number accelerating each year.
The chain opened its 29th store last week in Orange County and plans to open new outlets later this year in Corona del Mar, Huntington Beach and the South Coast area of Costa Mesa.
“All in all, this is a strong start to our road to growth,” Diedrich Chairman John Martin said. “But it is just a start.”
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Finally in the Black
Diedrich Coffee has posted a quarterly profit for the first time in more than three years, but the Irvine company’s stock is still languishing near a 52-week low. Weekly stock trend:
June 4, ‘99: $6.75
Thursday close: $3.88
Net Sales
3rd Qtr. ‘97: $5.1 million
4th Qtr. ‘00: $19.1 million
Net Income
1st Qtr. ‘98: -$5.38 million
4th Qtr. ‘00: $599,000
NOTE: Fiscal year ends in June
Source: Bloomberg News
