Irvine, Calif., April 21, 2006 -- Diedrich Coffee, Inc. (Nasdaq: DDRX) today announced operating results for its third fiscal quarter of 2006, which ended March 8, 2006. For the quarter, the Company reported a net loss of $1,684,000, or $0.32 per share, compared to a profit of $15,601,000, or $2.99 per share, for the third quarter of the prior fiscal year.
Results for the third quarter of last year included an after tax gain of $15,558,000, or $2.98 per basic share, from the sale of the Company's Gloria Jean's international operations and earnings from discontinued operations of $576,000, or $0.11 per share.
The loss in this year's third quarter from continuing operations of $1,684,000, or $0.32 per share, compares to a net loss of $533,000, or $0.10 per share, from continuing operations in last year's quarter.
For the first three quarters, the Company reported a net loss of $4,677,000, or $0.88 per share, compared to net income of $15,652,000, or $3.01 per share, in the first three quarters of fiscal year 2005. Results for the same period last year included an after tax gain of $15,558,000, or $3.00 per basic share, from the sale of the Company's Gloria Jean's international operations and earnings from discontinued operations of $1,656,000, or $0.32 per share.
The loss from this year's first three quarters from continuing operations of $4,677,000, or $0.88 per share, compares to a net loss of $1,562,000, or $0.30 per share, from continuing operations in the same period last year.
Revenue
Revenue increased by $2,425,000, or 20.9%, for the third quarter as compared with the prior year quarter. With respect to the components of total revenue, retail sales increased $860,000 (12.1%), wholesale revenue increased $1,675,000 (48.9%), and franchise revenue declined $110,000 (10.2%).
The increase in retail sales for the third fiscal quarter versus the prior year quarter was primarily the result of a 5.7% increase in same store sales from company-operated units and a net increase of two stores since March 9, 2005. Retail sales associated with e-commerce also increased by $93,000 (67.4%) as compared to the prior year quarter.
For the first three quarters of the fiscal year, retail sales increased $2,206,000, or 10.1%, from the prior year primarily due to a 3.8% increase in same store sales at company-operated units and a $200,000 (47.3%) increase in e-commerce related retail sales.
Comparable store sales at company operated Diedrich Coffee brand coffeehouses open for at least one year increased by 2.1% for the quarter and 0.9% for the first three quarters of the year, as compared with the prior year periods, while comparable store sales at company operated Coffee People brand locations increased 10.9% during the third quarter and 7.5% for the first three quarters of the year. Compared to the prior year, comparable store sales at Gloria Jean's franchise locations declined 0.6% during the third fiscal quarter and are down 2.3% for the first three quarters of the year.
Wholesale revenue from third party customers rose sharply in the quarter and first three quarters of the year and wholesale revenue from franchise units also increased due primarily to the timing of holiday coffee shipments to franchisees. Wholesale sales to third parties increased $1,524,000, or 60.8%, in the quarter and $3,118,000, or 43.9%, year to date, primarily due to strong growth in the Keurig "K-cup" line where sales rose 70.2% in the quarter and 54.3% in the fiscal year to date. Wholesale sales to domestic franchise units increased $152,000, or 16.4%, in the quarter and $5,000, or 0.1%, in the fiscal year to date.
Franchise revenue for the third fiscal quarter decreased primarily due to the net effect of a $73,000 decrease in franchise fees and an accounting reclassification of $60,000 of coordination fees to general and administrative expense partially offset by a $23,000 increase in royalties. Since the beginning of fiscal 2005, the domestic franchise store count increased by a net of one location (26 stores were opened, 29 were closed and a net of four company stores were transferred to franchisees). For the first three quarters of the fiscal year, franchise revenue decreased by $439,000, or 14.1%, when compared to the same period last year due to a decrease in royalties and franchise fees and an accounting reclassification of coordination fees to general and administrative expense.
Costs and Expenses
Cost of sales and related occupancy costs increased from 55.1% of retail and wholesale sales in the prior year quarter to 59.0% in the current quarter and increased from 54.0% of such sales in the first three quarters of last year to 57.5% for the same period this year. The increased costs were attributable to higher coffee and bakery costs in the retail locations and to the higher mix of Keurig related sales in the wholesale segment, which are higher cost and lower margin items. Occupancy costs increased $115,000, or 13.4%, in the current quarter and $443,000, or 17.4%, in the first three quarters of the year due to higher rents associated with new retail stores and lease renewals at existing retail stores.
Operating expenses declined as a percentage of retail and wholesale sales for the quarter, decreasing from 36.1% in the third quarter of last year to 32.9% in the third quarter of the current year. For the first three quarters of the year, operating expenses decreased from 34.9% last year to 33.6% in the same period this year.
For the third quarter, general and administrative expenses increased as a percentage of revenues from 20.1% in the third quarter of fiscal 2005 to 23.6% in the current year quarter. The major increases were in the areas of franchise sales, field supervision, construction and severance expense resulting from the departure of our former vice president, information systems. The Company also incurred an $111,000 increase in stock-based compensation expense due to the adoption of SFAS 123R in the first quarter of fiscal 2006 and a $481,000 net increase in legal fees. These expenses were offset by a decrease for the Gloria Jean's brand resulting from a change in the classification for coordination fees previously reflected in franchise income.
For the first three quarters, general and administrative expenses increased as a percentage of revenues from 20.8% in the first three quarters of fiscal 2005 to 23.5% in the current year. The increase is primarily due to costs associated with the departures of the Company's former chief executive officer and vice president of information systems; advertising development and brand research costs and costs associated with field supervision, construction, training and franchise sales. The Company incurred a $287,000 increase in stock-based compensation expense due to the adoption of SFAS 123R in the first quarter of fiscal 2006 and a $512,000 net increase in legal fees. These expenses were offset by a decrease for the Gloria Jean's brand resulting from a change in the classification for coordination fees previously reflected in franchise income.
About Diedrich Coffee
With headquarters in Irvine, California Diedrich Coffee specializes in sourcing, roasting and selling the world's highest quality coffees. The Company's three brands are Gloria Jean's Coffees, Diedrich Coffee, and Coffee People. The Company's 202 retail outlets, the majority of which are franchised, are located in 33 states. Diedrich Coffee also sells its coffees through more than 460 wholesale accounts including office coffee service distributors, restaurants and specialty retailers, via mail order and the Internet.
DIEDRICH COFFEE, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
($ in thousands, except per share amounts)
OPERATIONS DATA: Twelve Twelve Twenty-Four Twenty-Four
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
March 8, March 9, March 8, March 9,
2006 2005 2006 2005
Retail sales $7,975 $7,115 $24,007 $21,801
Wholesale and other 5,102 3,427 14,496 11,374
Franchise revenue 972 1,082 2,668 3,107
Total net revenue 14,049 11,624 41,171 36,282
Cost of sales and
related occupancy
costs 7,713 5,806 22,152 17,904
Operating expenses 4,299 3,801 12,927 11,590
Depreciation and
amortization 617 563 1,775 1,697
General and
administrative
expenses 3,313 2,333 9,677 7,550
(Gain) loss on
asset disposals 5 (2) 22 (14)
Total costs and
expenses 15,947 12,501 46,553 38,727
Operating loss (1,898) (877) (5,382) (2,445)
Interest expense
and other income,
net 93 4 321 (90)
Loss from continuing
operations before
income tax benefit (1,805) (873) (5,061) (2,535)
Income tax benefit (121) (340) (384) (973)
Net loss from
continuing
operations (1,684) (533) (4,677) (1,562)
Income from
discontinued
operations, net -- 576 -- 1,656
Gain on sale of
discontinued
operations, net -- 15,558 -- 15,558
Net income (loss) $(1,684) $15,601 $(4,677) $15,652
Basic and diluted
net income (loss)
per share:
Loss from continuing
operations $(0.32) $(0.10) $(0.88) $(0.30)
Income from
discontinued
operations, net $-- $3.09 $-- $3.31
Net income (loss) $(0.32) $2.99 $(0.88) $3.01
Basic and diluted
weighted average
shares
Outstanding 5,303 5,214 5,300 5,194
DIEDRICH COFFEE, INC.
BALANCE SHEET AND RETAIL UNIT COUNT DATA
($ in thousands)
March 8, 2006 June 29, 2005
(UNAUDITED)
Cash $4,286 $10,493
Restricted Cash 578 --
Accounts receivable, net 3,527 2,203
Inventories 3,163 3,426
All other assets 25,056 24,191
Total assets $36,610 $40,313
Accounts payable $3,613 $2,642
All other current liabilities 4,425 5,369
Deferred rent 599 452
Other non-current liabilities 314 328
Deferred Compensation 390 --
Total stockholders' equity 27,269 31,522
Total liabilities and stockholders' equity $36,610 $40,313
Total retail stores (Company and franchise,
all brands) 202 201