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Diedrich Chief Quits; 5 Outlets May Be Closed

Retail: Coffee shop chain says it may post $1-million yearly loss but still sees growth prospects.


IRVINE — Diedrich Coffee Inc. said Wednesday that Steven A. Lupinacci has resigned as president, chief executive, chief financial officer and director of the coffee-chain operator.

The fast-growing coffee shop chain, which recently expanded into Colorado and Texas, also said it might close five poorly performing stores and record an estimated $1-million net loss for the fiscal year ended Jan. 29. Diedrich reported a $186,000 net profit during the previous year.

Diedrich executives tied the yearly loss to slow sales of holiday merchandise at stores and through a company catalog, a rapid expansion program that strained operating systems and slower-than-anticipated revenue growth outside its Southern California stronghold.

Lawrence Goelman, a company director, was named interim president, and the Irvine-based chain has initiated a search for a new president and chief executive. Lupinacci wasn't available Wednesday to comment on his departure.

Diedrich, which grew to 36 locations from 12 in fiscal 1996, said that yearly revenue will increase to $19 million from $10.2 million, largely on the strength of sales at new locations.

Although four of five stores that might be closed are out of state, Diedrich Chief Operating Officer Kerry Coin said the company "remains firmly committed to expansion into new markets and continues to believe that prospects for growth are good."

Coin acknowledged that the chain underestimated the time needed to build a customer base in Colorado and Texas, where it competes against national leader Starbucks and a growing number of regional chains. But Coin said that most of the company's stores are generating a positive cash flow, and that Diedrich is upgrading its operating systems to handle growth better.

Diedrich, which raised $20.9 million in an initial public stock offering last September, said Wednesday that it has arranged a $1-million line of credit from an unnamed shareholder and that it expects to hire the Boston Group LP to help it find acquisition candidates.

Lupinacci, who joined Diedrich in 1992, helped develop Diedrich's coffee shop format and oversaw the chain's expansion from four coffee shops to the current level of 46 locations. The company said that Lupinacci will "return to his role as a private investor and pursue other interests."

Diedrich's stock didn't trade Wednesday. Its shares fell by $1.625 per share to $5.75 on Tuesday on the Nasdaq market. The company's shares hit a yearly high of $12 shortly after last September's public offering.

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