Diedrich Coffee, Inc. (Nasdaq: DDRX), the nation's second largest coffeehouse operator, franchisor and roaster in the specialty coffee market, today reported that it expects to record non-cash asset impairment charges against fiscal fourth quarter earnings in the range of $15 to $18 million relating to its Gloria Jean's operation. The Company previously reported in a June 29, 2000 press release that it expected to record substantial non-cash asset impairment charges related to Gloria Jean's, but was unable to quantify the expected range of those charges at that time. The Company also noted today that it expects to record operating losses between $5 million and $6 million for the fiscal year ended June 2000, including approximately $2.5 million in operating charges resulting from increased reserves for future rents and lease termination costs for closed Gloria Jean's locations, severance and relocation expenses, increased reserves for certain inventories, and other miscellaneous charges. The Company will report forth quarter and full year results for fiscal 2000, as well as the exact amount of charges in its press release and 10K filing, both of which will be issued by the end of September 2000.

As previously announced, the asset impairment charges will be reflected in Diedrich Coffee's fourth quarter and year-end results for the fiscal year ended June 28, 2000, and will consist primarily of reductions in the amount of goodwill carried on the Company's balance sheet associated with its Gloria Jean's operating division. The charges reflect the closure of 39 Gloria Jean's store locations and other operating shortfalls experienced in its Gloria Jean's subsidiary.

"This was a tough but necessary step for us to take," said Tim Ryan, President and CEO of Diedrich Coffee, Inc. "While the recent focus has been on the resolution of problems at our Gloria Jean's units, there are many positive things happening there, including five recent international store openings, the continuing positive same-store sales for the first time in five years, the higher financial and operational standards recently implemented throughout the system, and the major repositioning test scheduled to commence this fall. In addition, our Diedrich Coffee brand coffeehouse system is growing, with another franchise unit opening last week in Cypress, CA, and two other franchise stores under construction, as that part of our business continues to pick up momentum," concluded Mr. Ryan.

As previously announced the Company is in technical violation of its financial covenants in its credit agreement, however it has made all of its principal and interest payments due to-date under the existing credit agreement, and is continuing to negotiate amended terms.

About Diedrich Coffee

Diedrich Coffee, Inc. is the nation's second largest retailer in the specialty coffee market with annual system-wide revenues in excess of $150 million annually through 363 retail locations in 37 states and nine foreign countries. The Company's primary brands are Diedrich Coffee brand coffeehouses and Gloria Jean's Coffees, the nation's leading chain of mall-based coffee stores.

Headquartered in Irvine, Calif., Diedrich Coffee specializes in sourcing and custom roasting the world's highest quality coffees and offering them to customers through its coffeehouses and mall stores and via wholesale, mail order and its website. For more information about Diedrich Coffee, call (800) 354-5282, or visit the Company's website at www.diedrich.com.

Forward Looking Statements

Statements in this news release that relate to future plans, financial results or projections, events or performance are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and fall under the safe harbor. Actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including but not limited to, the successful management of Diedrich Coffee's growth strategy, impact of competition, the availability of working capital and other risks and uncertainties described in detail under "Risk Factors and Trends Affecting Diedrich Coffee and its Business" in the Company's annual report on form 10-K for the fiscal year ended Jan. 27, 1999.