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Diedrich Coffee Expects Substantial Losses

Beverages: The Irvine firm has closed 39 Gloria Jean's stores; operating shortfalls for fiscal 2000 may be $5 million to $6 million.

August 18, 2000|From Dow Jones Newswires

Diedrich Coffee Inc., which warned weeks ago that its struggling Gloria Jean's unit was going to put a dent in the bottom line, said Thursday it expects to post operating losses of $5 million to $6 million for its fiscal year.

The Irvine coffeehouse operator and franchiser said it expects to log noncash charges of $15 million to $18 million in the fourth quarter from closing 39 poorly performing Gloria Jean's coffee stores.

Diedrich also said it remains in technical violation of its bank lending agreements, although it has make all loan payments to date. The company is continuing to negotiate amended terms.

The company had warned late in June that it expected "substantial" losses for the fourth quarter and fiscal year ended June 28, as well as charges in both periods related to its Gloria Jean's operation. Diedrich didn't provide specific estimates at the time.

The company also said in June that it expected to violate its bank lending agreements as a result of problems at Gloria Jean's.

Diedrich Chief Executive Timothy J. Ryan said then that the company had to shed poorly performing stores to advance in the competitive multibillion-dollar industry, which is dominated by Starbucks Corp.

Many of the Gloria Jean's stores, which Diedrich acquired with the purchase of Coffee People last summer, are in lackluster shopping centers or in malls where rents have soared, Ryan said.

Diedrich said Thursday that its earnings estimate for the fiscal year includes about $2.5 million in charges from increased reserves for future rents and lease termination costs for closed Gloria Jean's locations.

The charges also cover severance and relocation expenses, increased reserves for certain inventories and other miscellaneous charges.

The fourth-quarter charges consist mainly of reductions in the amount of goodwill carried on the balance sheet associated with the Gloria Jean's operating division. The charges reflect the store closures and other operating shortfalls of the unit.

For the fourth quarter of 1999, the coffee retailer lost $446,000, or 7 cents a share, including a provision of $648,000 for store closings and restructuring, on revenue of about $6.2 million.

For fiscal 1999, the company lost about $2.6 million, or 43 cents a share, including a provision of $3.9 million for store closings and restructuring. Revenue for the period was about $24.2 million.

Diedrich, which intends to report financial results for its 2000 fiscal year and fourth quarter by the end of September, said that there have been positive developments, such as an increase in sales at stores open at least a year.

The company's stock, which has lost nearly 64% of its value so far this year, closed Thursday at $1.47, up 3 cents a share, in Nasdaq trading.

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