UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



|(X)   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED 
    SEPTEMBER 27, 2003       
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                  
|      | OR                                                                                                                                                               
|      |                                                                                                                                                                  
|(   ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM 
    __________ TO __________





Commission file number 0-21577



WILD OATS MARKETS, INC.

(Exact name of registrant as specified in its charter)



Delaware
    84-1100630(State or other
    jurisdiction of
    Incorporation or organization)
    (I.R.S. Employer
    Identification Number)






3375 Mitchell Lane

Boulder, Colorado 80301

(Address of principal executive offices, including zip code)





(303) 440-5220

(Registrant's telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
days:

Yes       ( X )       No      (  )



Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2):

Yes       ( X )       No      (  )



As of November 4, 2003, there were 30,010,201 shares outstanding of the Registrant's
Common Stock (par value $.001 per share).





---



TABLE OF CONTENTS

|PART I.                |  | FINANCIAL
    INFORMATION                                                                                                                |   
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- | --
|                       |  |                                                                                                                                          |   
|Item 1.                |  | Financial
    Statements:                                                                                                                |   
|                       |  |                                                                                                                                          |   
|                       |  | Consolidated Balance Sheets (unaudited), September
      27, 2003 and December 28, 2002                                                  | 3 
|                       |  |                                                                                                                                          |   
|                       |  | Consolidated Statements of Operations (unaudited), Three
      and Nine Months Ended September 27, 2003 and September 28, 2002           | 4 
|                       |  |                                                                                                                                          |   
|                       |  | Consolidated Statements of Comprehensive Income
      (unaudited), Three and Nine Months Ended September 27, 2003 and September 28, 2002 | 5 
|                       |  |                                                                                                                                          |   
|                       |  | Consolidated Statements of Cash Flows (unaudited),
      Nine Months Ended September 27, 2003 and September 28, 2002                     | 6 
|                       |  |                                                                                                                                          |   
|                       |  | Notes to Consolidated Financial Statements (unaudited)                                                                                   | 7 
|                       |  |                                                                                                                                          |   
|Item 2.                |  | Management's
    Discussion and Analysis of Financial Condition and Results of Operations                                                | 15
|                       |  |                                                                                                                                          |   
|Item 3.                |  | Quantitative
    and Qualitative Disclosures About Market Risk                                                                           | 23
|                       |  |                                                                                                                                          |   
|Item 4.                |  | Controls
    and Procedures                                                                                                              | 23
|                       |  |                                                                                                                                          |   
|                       |  |                                                                                                                                          |   
|PART II.               |  | OTHER INFORMATION                                                                                                                        |   
|                       |  |                                                                                                                                          |   
|Item 1.                |  | Legal
    Proceedings                                                                                                                    | 24
|                       |  |                                                                                                                                          |   
|Item 2.                |  | Changes
    in Securities                                                                                                                | 24
|                       |  |                                                                                                                                          |   
|Item 3.                |  | Defaults
    Upon Senior Securities                                                                                                      | 24
|                       |  |                                                                                                                                          |   
|Item 4.                |  | Submission
    of Matters to a Vote of Security Holders                                                                                  | 24
|                       |  |                                                                                                                                          |   
|Item 5.                |  | Other
    Information                                                                                                                    | 24
|                       |  |                                                                                                                                          |   
|Item 6.                |  | Exhibits
    and Reports on Form 8-K                                                                                                     | 25
|                       |  |                                                                                                                                          |   
|SIGNATURE AND EXHIBITS | 
|                       |  |                                                                                                                                          |   
|                       |  | Signature                                                                                                                                | 26
|                       |  |                                                                                                                                          |   
|Exhibit 31.1           |  | CEO
    Certification in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002                                                   |   
|                       |  |                                                                                                                                          |   
|Exhibit
    31.2       |  | CFO Certification in
    Accordance with Section 302 of the Sarbanes-Oxley Act of 2002                                                   |   
|                       |  |                                                                                                                                          |   
|Exhibit 32.1           |  | CEO
    Certification in Accordance with Section 906 of the Sarbanes-Oxley Act of 2002                                                   |   
|                       |  |                                                                                                                                          |   
|Exhibit 32.2           |  | CFO
    Certification in Accordance with Section 906 of the Sarbanes-Oxley Act of 2002                                                   |   



2

---

PART I.  FINANCIAL INFORMATION



Item 1.  Financial Statements



WILD OATS MARKETS, INC.

Consolidated Balance Sheets

(in thousands, except share data) (unaudited)



|                                         |                                   |                                                                                                                                             |                            |          | September 27, |          | December 28,
|---------------------------------------- | --------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------- | ------------- | -------- | ------------
|                                         |                                   |                                                                                                                                             |                            |          | 2003          |          | 2002        
|                                         |                                   |                                                                                                                                             |                            |         
|ASSETS                                   |                                   |                                                                                                                                             |                            |         
|                                         |                                   |                                                                                                                                             |                            |          |              
|                                         | Current assets:                   |                                                                                                                                             |                            |          |              
|                                         |                                   | Cash and cash equivalents                                                                                                                   |                            | $ 11,211 |               | $ 11,367
|                                         |                                   | Inventories, net                                                                                                                            |                            | 45,836   |               | 47,175  
|                                         |                                   | Accounts receivable, net                                                                                                                    |                            | 2,860    |               | 2,524   
|                                         |                                   | Income tax receivable                                                                                                                       |                            | 327      |               | 250     
|                                         |                                   | Prepaid expenses and other current
    assets                                                                                               |                            | 1,521    |               | 2,163   
|                                         |                                   | Deferred tax asset                                                                                                                          |                            | 3,217    |               | 4,656   
|                                         |                                   |                                                                                                                                             | Total current assets       |          | 64,972        |          | 68,135      
|                                         |                                   |                                                                                                                                             |                            |          |               |          |             
|                                         | Property and equipment, net       |                                                                                                                                             | 126,134                    |          | 122,359      
|                                         | Goodwill, net                     |                                                                                                                                             | 106,404                    |          | 106,404      
|                                         | Other intangible assets, net      |                                                                                                                                             | 7,119                      |          | 7,415        
|                                         | Deposits and other assets         |                                                                                                                                             | 3,695                      |          | 3,622        
|                                         | Deferred tax asset                |                                                                                                                                             | 15,269                     |          | 15,650       
|                                         |                                   |                                                                                                                                             |                            |          | $ 323,593     |          | $ 323,585   
|                                         |                                   |                                                                                                                                             |                            |         
|LIABILITIES AND STOCKHOLDERS'
    EQUITY |                                   |                                                                                                                                             |                            |         
|                                         |                                   |                                                                                                                                             |                            |          |              
|                                         | Current liabilities:              |                                                                                                                                             |                            |          |              
|                                         |                                   | Accounts payable                                                                                                                            |                            | $ 40,590 |               | $ 34,819
|                                         |                                   | Book overdraft                                                                                                                              |                            | 22,288   |               | 22,777  
|                                         |                                   | Accrued liabilities                                                                                                                         |                            | 36,080   |               | 37,943  
|                                         |                                   | Current portion of debt and
    capital leases                                                                                              |                            | 19       |               | 146     
|                                         |                                   |                                                                                                                                             | Total current liabilities  |          | 98,977        |          | 95,685      
|                                         |                                   |                                                                                                                                             |                            |          |               |          |             
|                                         | Long-term debt and capital leases |                                                                                                                                             | 37,279                     |          | 43,075       
|                                         | Other long-term obligations       |                                                                                                                                             | 13,964                     |          | 17,923       
|                                         |                                   |                                                                                                                                             |                            |          | 150,220       |          | 156,683     
|                                         | Commitments and contingencies     |                                                                                                                                             |                            |          |              
|                                         |                                   |                                                                                                                                             |                            |          |              
|                                         | Stockholders' equity:             |                                                                                                                                             |                            |          |              
|                                         |                                   | Preferred stock, $0.001 par value;
    5,000,000 shares authorized, no shares issued and outstanding                                        |                            | -        |               | -       
|                                         |                                   | Common stock, $0.001 par value;
    60,000,000 shares authorized, 29,965,041 and 29,658,660 shares issued and outstanding,
    respectively |                            | 30       |               | 30      
|                                         |                                   | Additional paid-in capital                                                                                                                  |                            | 216,455  |               | 213,482 
|                                         |                                   | Note receivable, related party                                                                                                              |                            | (10,625) |               | (10,200)
|                                         |                                   | Accumulated deficit                                                                                                                         |                            | (32,606) |               | (35,368)
|                                         |                                   | Accumulated other comprehensive
    income (loss)                                                                                           |                            | 119      |               | (1,042) 
|                                         |                                   |                                                                                                                                             | Total stockholders' equity |          | 173,373       |          | 166,902     
|                                         |                                   |                                                                                                                                             |                            |          | $ 323,593     |          | $ 323,585   

The accompanying notes are an integral part of the consolidated
financial statements.



3

---



WILD OATS MARKETS, INC.

Consolidated Statements of Operations

(in thousands, except per-share data) (unaudited)



|                                                                  |                                                              |                                   |          |           | THREE MONTHS
    ENDED |           | NINE
    MONTHS ENDED
|----------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------- | -------- | --------- | ---------------------- | --------- | ---------------------
|                                                                  |                                                              |                                   |          |           | Sep 27,                |           | Sep 28,              
|                                                                  |                                                              |                                   |          |           | 2003                   |           | 2002                 
|                                                                  |                                                              |                                   |          |           |                        |           |                      
|Sales                                                             |                                                              | $ 237,028                         |          | $ 228,102 |                        | $ 715,263 |                      
|Cost of goods sold and occupancy
    costs                        |                                                              | 168,158                           |          | 161,026   |                        | 504,312   |                      
|Gross profit                                                      |                                                              | 68,870                            |          | 67,076    |                        | 210,951   |                      
|Operating expenses:                                               |                                                              |                                   |          |           |                        |           |                      
|                                                                  | Direct store expenses                                        |                                   | 53,114   |           | 48,629                 |           | 154,305              
|                                                                  | Selling, general and
    administrative expenses             |                                   | 15,472   |           | 12,705                 |           | 48,246               
|                                                                  | (Gain) loss on disposal of assets                            |                                   | 661      |           | 13                     |           | 2,029                
|                                                                  | Pre-opening expenses                                         |                                   | 616      |           | 237                    |           | 1,639                
|                                                                  | Restructuring and asset impairment
    charges (income), net |                                   | 134      |           | (174)                  |           | (1,747)              
|                                                                  |                                                              | Income (loss) from operations     |          | (1,127)   |                        | 5,666     |                      
|                                                                  | Interest income                                              |                                   | 199      |           | 234                    |           | 554                  
|                                                                  | Interest expense                                             |                                   | (484)    |           | (2,368)                |           | (2,319)              
|                                                                  | Loss on early extinguishment of
    debt                     |                                   | -        |           | -                      |           | (186)                
|                                                                  |                                                              | Income (loss) before income taxes |          | (1,412)   |                        | 3,532     |                      
|                                                                  | Income tax expense (benefit)                                 |                                   | (551)    |           | 1,360                  |           | 1,766                
|Net income (loss)                                                 |                                                              | $ (861)                           |          | $ 2,172   |                        | $ 2,762   |                      
|                                                                  |                                                              |                                   |          |           |                        |           |                      
|Net income per common share:                                      |                                                              |                                   |          |           |                        |           |                      
|                                                                  | Basic                                                        |                                   | $ (0.03) |           | $ 0.08                 |           | $ 0.09               
|                                                                  | Diluted                                                      |                                   | $ (0.03) |           | $ 0.08                 |           | $ 0.09               
|                                                                  |                                                              |                                   |          |           |                        |           |                      
|Weighted average common shares
    outstanding, basic             |                                                              | 29,898                            |          | 26,440    |                        | 29,792    |                      
|Dilutive effect of stock options                                  |                                                              | -                                 |          | 745       |                        | 377       |                      
|Weighted average common shares
    outstanding, assuming dilution |                                                              | 29,898                            |          | 27,185    |                        | 30,169    |                      
|                                                                  |                                                              |                                   |          |           |                        |           |                      



The accompanying notes are an integral part of the consolidated
financial statements.



4

---

WILD OATS MARKETS, INC.

Consolidated Statements of Comprehensive Income
(Loss)

(in thousands) (unaudited)

|                            |                                                                                                                               |         |    |         | THREE MONTHS
    ENDED |         | NINE
    MONTHS ENDED
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------- | -- | ------- | ---------------------- | ------- | ---------------------
|                            |                                                                                                                               |         |    |         | Sep 27,                |         | Sep 28,              
|                            |                                                                                                                               |         |    |         | 2003                   |         | 2002                 
|                            |                                                                                                                               |         |    |         |                        |         |                      
|Net income (loss)           |                                                                                                                               | $ (861) |    | $ 2,172 |                        | $ 2,762 |                      
|                            |                                                                                                                               |         |    |         |                        |         |                      
|Other comprehensive income: |                                                                                                                               |         |    |         |                        |         |                      
|                            | Foreign currency translation
    adjustments arising during the period                                                        |         | 80 |         | (196)                  |         | 568                  
|                            | Recognition of hedge results to
    interest expense during the period, net of tax of $51, $172, $367, and $542, respectively |         | 85 |         | 287                    |         | 613                  
|                            | Change in market value of cash
    flow hedge during the period, net of tax of $0, $27, $12, and $194, respectively           |         | -  |         | (45)                   |         | (20)                 
|                            |                                                                                                                               |         |    |         |                        |         |                      
|Other comprehensive income  |                                                                                                                               | 165     |    | 46      |                        | 1,161   |                      
|                            |                                                                                                                               |         |    |         |                        |         |                      
|Comprehensive income (loss) |                                                                                                                               | $ (696) |    | $ 2,218 |                        | $ 3,923 |                      



The accompanying notes are an integral part of the consolidated
financial statements



5

---

WILD OATS MARKETS, INC.

Consolidated Statements of Cash Flows

(in thousands) (unaudited)

|                                                         |                                                                                |                                                                 |                                                         |          | NINE MONTHS
    ENDED
|-------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------------------- | ------------------------------------------------------- | -------- | ---------------------
|                                                         |                                                                                |                                                                 |                                                         |          | Sep 27,              
|                                                         |                                                                                |                                                                 |                                                         |          | 2003                 
|                                                         |                                                                                |                                                                 |                                                         |          |                      
|CASH FLOWS FROM OPERATING
    ACTIVITIES                 |                                                                                |                                                                 |                                                         |         
|                                                         | Net income                                                                     |                                                                 | $ 2,762                                                 |          | $ 4,338              
|                                                         | Adjustments to reconcile net
    income to net cash from operating activities: |                                                                 |                                                         |          |                      
|                                                         |                                                                                | Depreciation and amortization                                   |                                                         | 16,764   |                      
|                                                         |                                                                                | Loss (gain) on disposal of
    property and equipment           |                                                         | 2,029    |                      
|                                                         |                                                                                | Deferred tax expense                                            |                                                         | 1,396    |                      
|                                                         |                                                                                | Reversal of restructuring and
    asset impairment charges, net |                                                         | (1,747)  |                      
|                                                         |                                                                                | Other                                                           |                                                         | 318      |                      
|                                                         | Change in assets and liabilities:                                              |                                                                 |                                                         |          |                      
|                                                         |                                                                                | Inventories, net                                                |                                                         | 1,500    |                      
|                                                         |                                                                                | Receivables, net, and other assets                              |                                                         | 533      |                      
|                                                         |                                                                                | Accounts payable                                                |                                                         | 5,698    |                      
|                                                         |                                                                                | Accrued liabilities                                             |                                                         | (3,051)  |                      
|                                                         |                                                                                |                                                                 | Net cash provided by operating
    activities           |          | 26,202               
|                                                         |                                                                                |                                                                 |                                                         |          |                      
|CASH FLOWS FROM INVESTING
    ACTIVITIES                 |                                                                                |                                                                 |                                                         |         
|                                                         | Capital expenditures                                                           |                                                                 | (22,070)                                                |          | (6,906)              
|                                                         | Proceeds from sale of property and
    equipment                               |                                                                 | 326                                                     |          | 218                  
|                                                         |                                                                                |                                                                 | Net cash used in investing
    activities               |          | (21,744)             
|                                                         |                                                                                |                                                                 |                                                         |          |                      
|CASH FLOWS FROM FINANCING
    ACTIVITIES                 |                                                                                |                                                                 |                                                         |         
|                                                         | Net repayments under
    line-of-credit agreement                              |                                                                 | (6,700)                                                 |          | (24,000)             
|                                                         | Net decrease in book overdraft                                                 |                                                                 | (489)                                                   |          | (493)                
|                                                         | Repayments on notes payable,
    long-term debt and capital leases             |                                                                 | (37,102)                                                |          | (8,294)              
|                                                         | Proceeds from long term debt                                                   |                                                                 | 37,879                                                  |          | -                    
|                                                         | Payment of debt issuance costs                                                 |                                                                 | (721)                                                   |          | -                    
|                                                         | Proceeds from issuance of common
    stock                                     |                                                                 | 2,455                                                   |          | 52,925               
|                                                         |                                                                                |                                                                 | Net cash provided by (used in)
    financing activities |          | (4,678)              
|                                                         |                                                                                |                                                                 |                                                         |          |                      
|Effect of exchange rate changes on
    cash              |                                                                                | 64                                                              |                                                         | 14      
|Net increase (decrease) in cash
    and cash equivalents |                                                                                | (156)                                                           |                                                         | 38,543  
|Cash and cash equivalents at
    beginning of period     |                                                                                | 11,367                                                          |                                                         | 18,840  
|Cash and cash equivalents at end
    of period           |                                                                                | $ 11,211                                                        |                                                         | $ 57,383
|                                                         |                                                                                |                                                                 |                                                         |          |                      
|NON-CASH INVESTING AND
    FINANCING ACTIVITIES          |                                                                                |                                                                 |                                                         |         
|                                                         | Stock issued in payment of note
    payable                                    |                                                                 |                                                         |          | $ 1,210              
|                                                         | Settlement of note payable against
    accounts receivable                     |                                                                 |                                                         |          | $ 200                

The accompanying notes are an integral part of the consolidated
financial statements.



6

---

WILD OATS MARKETS, INC.

Notes to Consolidated Financial Statements

(unaudited)



|1. | Nature of Operations and
    Basis of Presentation
|-- | --------------------------------------------------

Wild Oats Markets, Inc. ("Wild Oats" or the
"Company"), headquartered in Boulder, Colorado, owns and operates natural foods
grocery stores in the United States and Canada. The Company also operates commissary
kitchens and warehouses that supply the stores. The Company's operations are concentrated
in one market segment, grocery stores, and are geographically concentrated in the western
and central parts of the United States.

The consolidated balance sheet as of September 27, 2003, the
consolidated statements of operations and comprehensive income for the three months and
nine months ended September 27, 2003 and September 28, 2002, as well as the consolidated
statements of cash flows for the nine months ended September 27, 2003 and September 28,
2002 have been prepared without an audit. In the opinion of management, all adjustments,
consisting only of normal, recurring adjustments necessary for a fair statement thereof,
have been made.

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should be read in
conjunction with financial statements and notes thereto included in the Company's 2002
Annual Report on Form 10-K. The results of operations for interim periods presented are
not necessarily indicative of the operating results for the full year.

The unaudited information included in the consolidated financial statements for the
three months and nine months ended September 27, 2003 and September 28, 2002 includes the
results of operations of the Company for the 13 weeks and 39 weeks then ended.

Certain prior period information has been reclassified to conform to the current
presentation.



|2. | Implementation of New
    Accounting Pronouncements
|-- | ---------------------------------------------------

The Company receives allowances from its vendors through a variety of
programs and arrangements, including cooperative advertising and markdown reimbursement
programs. The allowances are intended to offset the Company's costs of promoting,
advertising and selling the vendors' products in its stores. Vendor allowances are
recognized as a reduction of cost of sales or related selling expense when the intended
purpose of the vendor funds is satisfied. Cooperative advertising allowances are reported
as a reduction of advertising expense in the period in which the advertising occurs.
Markdown reimbursements are credited to cost of goods sold during the period in which the
related promotional markdown is taken.

The FASB's Emerging Issues Task Force ("EITF") Issue No.
02-16, Accounting By a Customer (Including a Reseller) for Cash Consideration Received
From a Vendor addressed the accounting treatment for vendor allowances. The adoption
of EITF Issue No. 02-16 in fiscal 2003 did not have a material impact on the Company's
financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
addresses consolidation by business enterprises of variable interest entities, which have
certain characteristics. The adoption of FIN 46 has not had, nor does the Company believe
it will have, a material impact on its current or prospective financial statements.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued on July 30, 2002. SFAS No. 146 will require companies to
recognize costs associated with exit or disposal activities when they occur rather than at
the date of a commitment to an exit or disposal plan. SFAS No. 146 became effective for
the Company on January 1, 2003 and management believes it will have no material effect on
the Company's financial position or historical financial results.



7

---

During April 2003, the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. This statement amends
and clarifies financial accounting and reporting for derivative instruments and hedging
activities, resulting primarily from decisions reached by the FASB Derivatives
Implementation Group subsequent to the original issuance of SFAS No. 133. This Statement
is generally effective prospectively for contracts and hedging relationships entered into
after June 30, 2003. The Company has not entered into any such agreements since the
effective date; therefore, the adoption of SFAS No. 149 has had no impact on the Company.

During May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments With Characteristics of both Liabilities and Equity."
This Statement establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a liability, or
an asset in some circumstances. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Restatement is not permitted. The Company
currently has no financial instruments falling within the scope of this Statement;
therefore, the adoption of SFAS No. 150 has had no impact on the Company.

|3. | Stock-Based Compensation
|-- | ------------------------

In December 2002, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure
("SFAS 148"). The statement amends SFAS 123 to provide alternative methods of
transition for voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS 148 improves the prominence
and clarity of the pro forma disclosures required by SFAS 123 by prescribing a specific
tabular format and by requiring disclosure in the "Summary of Significant Accounting
Policies" or its equivalent. In addition, SFAS 148 improves the timeliness of those
disclosures by requiring their inclusion in financial reports for interim periods. SFAS
148 is effective for financial statements for fiscal years ending after December 15, 2002.

At September 27, 2003, the Company has seven stock-based employee
compensation plans, six of which are described more fully in Note 10 - Stock Plans and
Options in our fiscal 2002 Annual Report filed on Form 10-K for the period ended
December 28, 2002, and one of which was created in the second fiscal quarter of 2003 as an
inducement to employment for a new executive. One plan was formed for an executive no
longer with the Company, and will be terminated. The Company accounts for those plans
under the recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and Related Interpretations. Some stock-based employee
compensation cost is reflected in net income for options issued at a discount as Board of
Directors compensation. All other options granted under the plans had an exercise price
equal to the market value of the underlying common stock on the date of grant; therefore,
no other employee compensation cost is reflected in net income.



8

---



The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value recognition provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation,as amended, to
stock-based employee compensation:

|                               |                                                                                                                                 |                             |       |           | THREE MONTHS
    ENDED |         | NINE
    MONTHS ENDED
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----- | --------- | ---------------------- | ------- | ---------------------
|                               |                                                                                                                                 |                             |       |           | Sep 27,                |         | Sep 28,              
|                               |                                                                                                                                 |                             |       |           | 2003                   |         | 2002                 
|                               |                                                                                                                                 |                             |       |           |                        |         |                      
|Net income (loss), as reported |                                                                                                                                 | $ (861)                     |       | $ 2,172   |                        | $ 2,762 |                      
|                               | Add: Stock-based compensation
    expense included in reported net income, net of tax                                           |                             | 24    |           | -                      |         | 179                  
|                               | Deduct: Total stock-based employee
    compensation expense determined under fair value based method for all awards, net of tax |                             | (727) |           | (509)                  |         | (2,136               
|                               |                                                                                                                                 | Pro forma net income (loss) |       | $ (1,564) |                        | $ 1,663 |                      
|                               |                                                                                                                                 |                             |       |           |                        |         |                      
|                               | Earnings (loss) per share                                                                                                       |                             |       |           |                        |         |                      
|                               |                                                                                                                                 | Basic - as reported         |       | (0.03)    |                        | $ 0.08  |                      
|                               |                                                                                                                                 | Basic - pro forma           |       | $ (0.05)  |                        | $ 0.06  |                      
|                               |                                                                                                                                 |                             |       |           |                        |         |                      
|                               |                                                                                                                                 | Diluted - as reported       |       | $ (0.03)  |                        | $ 0.08  |                      
|                               |                                                                                                                                 | Diluted - pro forma         |       | $ (0.05)  |                        | $ 0.06  |                      



|4. | Property and Equipment
|-- | ----------------------

As a result of the significant store closings, remodels and resets, the
Company undertook a review of all fixtures and equipment in its stores, including a
physical inventory in conjunction with an asset tagging exercise. During the first quarter
of fiscal 2003, the Company substantially completed the review and recorded a $1.5 million
loss on disposal of fixtures and equipment that will no longer be used in the stores. This
loss approximates a 1.2% write-down of the fixed assets carrying value. In the third
quarter of fiscal 2003, a physical count of all office and support facility capital assets
was completed, and a $559,000 loss on disposal was recorded.



|5. | Debt Covenant Compliance and Liquidity
|-- | --------------------------------------

In February of 2003, the Company completed the refinancing of its
credit facility with Wells Fargo Bank N.A., as agent. The Company's facility has a $75.0
million limit, with a three-year term with a one-year renewal option. Under the credit
facility, the Company has the option to increase the total facility to $135.0 million
through the addition of new lenders and through the agreement of the current lending group
to increase their total commitments.

As part of the new credit facility, the Company gave the lenders
collateral in the form of security interest in accounts, equipment and fixtures, inventory
and other assets. The Company has also granted a leasehold mortgage in those leasehold
interests previously mortgaged to secure the former credit facility, although it has no
obligation to provide an interest in any



9

---

new leaseholds. The credit facility contains limitations on capital
expenditures and the signing of new leases. The interest rate on the facility is currently
either prime plus 1.0% or one-month LIBOR plus 2.25%, at the Company's election, and the
rates modify depending on the ratio of average total funded debt, as defined under the
credit facility, plus six times rent expense, to Earnings Before Interest, Taxes,
Depreciation, Amortization, and Rents (EBITDAR) for the four fiscal quarter periods then
ended, as calculated on the Company's quarterly compliance certificate. The Company
believes that cash generated from operations and available under its credit facility will
be sufficient to meet its working capital and capital expenditure requirements in fiscal
2003.

The Company anticipates that it will be in compliance with the monthly
and quarterly financial covenants in the credit agreement. In the event that business
conditions worsen, management has identified contingency actions to enable the Company to
remain in compliance with the financial covenants. Even if the Company continues to make
payments when due, a technical default could result due to a breach of the financial
covenants. In the absence of a waiver or amendment to such financial covenants, such
non-compliance would constitute a default under the credit agreement, and the lenders
would be entitled to accelerate the maturity of the indebtedness outstanding. In the event
that such non-compliance appears likely, or occurs, the Company will seek approval, as it
has in the past, from the lenders to renegotiate financial covenants and/or obtain
waivers, as required. However, there can be no assurance that future amendments or waivers
will be obtained.



|6. | Derivatives and Hedging
    Activities
|-- | --------------------------------------

In accordance with the Company's interest rate risk-management strategy
and as required by the terms of the Company's credit facility, in September 2000, the
Company entered into a swap agreement to hedge the interest rate on $30.0 million of its
borrowings as of March 29, 2003. The swap agreement locked in a one-month LIBOR rate of
6.7% and expired in August 2003. There is no obligation to renew the swap under the
refinanced facility. The Company had no derivatives as of September 27, 2003.



|7. | Earnings Per Share
|-- | ------------------

Earnings per share are calculated in accordance with the provisions of
SFAS No. 128, Earnings Per Share.SFAS No. 128 requires the Company to report both
basic earnings per share, which is based on the weighted-average number of common shares
outstanding, and diluted earnings per share, which is based on the weighted-average number
of common shares outstanding and all dilutive potential common shares outstanding, except
where the effect of their inclusion would be anti-dilutive. Anti-dilutive stock options of
1,533,438 and 1,300,069 for the three months and 1,219,048 and 1,246,005 for the nine
months ended September 27, 2003 and September 28, 2002, respectively, were not included in
the earnings per share calculations.



10

---



|8. | Goodwill and Finite
    Lived Intangible Assets
|-- | -----------------------------------------------

During the third quarter of fiscal 2003, no goodwill was recognized as
a result of acquisitions, no goodwill was impaired, and no other changes in the carrying
amount of goodwill occurred.

Finite lived intangible assets consist of the following (in thousands):

| |  |                                           |  |         | September 27, |         | December 28,
| |  | ----------------------------------------- |  | ------- | ------------- | ------- | ------------
| |  |                                           |  |         | 2003          |         | 2002        
| |  |                                           |  |        
| |  | Leasehold interests                       |  | $ 9,035 |               | $ 9,035
| |  | Liquor licenses and other
    intangibles |  | 168     |               | 104    
| |  |                                           |  | 9,203   |               | 9,139  
| |  | Less accumulated amortization             |  | (2,084) |               | (1,724)
| |  |                                           |  | $ 7,119 |               | $ 7,415







Amortization expense related to finite lived intangible assets was
$121,000 and $119,000 for the three months and $362,000 and $356,000 for the nine months
ended September 27, 2003 and September 28, 2002, respectively. The estimated amortization
of finite lived intangible assets for each of the five fiscal years ending in fiscal 2007
is as follows (in thousands):

|   | FISCAL 
    YEAR                                        |  | AMORTIZATION EXPENSE | 
|-- | ------------------------------------------------------- |  | -------------------- | 
|   |                                                         |  |                      | 
|   | 2003                                                    |  | $ 483                | 
|   | 2004                                                    |  | $ 493                | 
|   | 2005                                                    |  | $ 485                | 
|   | 2006                                                    |  | $ 468                | 
|   | 2007                                                    |  | $ 464                | 
|   |                                                         |  |                      | 
|9. | Restructuring
    and Asset Impairment Charges (Income)

During the third quarter of fiscal 2003, the Company recorded a
restructuring and asset impairment charge of $134,000 consisting of the following
components:

| | Lease-related
    liability for site closed during the third quarter of fiscal 2003                                  |                                | $ 70,000    | 
| | -------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ----------- | 
| |                                                                                                                      |                                |             | 
| | Changes in
    estimate related to lease-related liabilities for sites previously identified for closure
    or sale |                                | (612,000)   | 
| |                                                                                                                      |                                |             | 
| |                                                                                                                      | Total
    restructuring income | $ (542,000) | 



Details of the significant components are as follows:

- Lease-related liabilty for site closed during the third quarter of fiscal 2003 ($70,000
    of restructuring expense)
- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($612,000 of restructuring income)

In addition to the restructuring income described above, management
  also identified asset impairment charges of $676,000 in accordance with the provisions of
  SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets for
  two stores held for use. These assets became impaired during the third quarter of fiscal
  2003 because the projected cash flows of each store at the time were not sufficient to
  fully recover the carrying value of the stores' long-lived assets. In determining whether
  an impairment exists, the Company estimates the stores' future cash flows on an
  undiscounted basis, and if the cash flows are not sufficient to recover the carrying
  value, then the Company uses a discounted cash flow based on a risk-adjusted discount
  rate, to adjust its carrying value of the assets and records a provision for impairment as
  appropriate. The Company believes the weak performance from the stores included in the
  asset impairment charge was caused by depressed markets and increased competition. The
  Company continually reevaluates its stores' performance to monitor the carrying value of
  its long-lived assets in comparison to projected cash flows.



During the second quarter of fiscal 2003, the Company recorded
restructuring income of $145,000 consisting of the following components:

| | Change in
    estimate related to lease-related liabilities for sites previously identified for closure
    or sale that were closed, sold or disposed of during the second quarter of fiscal 2003 |                                | $ (2,195,000) | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------- | 
| |                                                                                                                                                                                                    |                                |               | 
| | Severance
    for employees terminated during the second quarter of fiscal 2003                                                                                                                    |                                | 117,000       | 
| |                                                                                                                                                                                                    |                                |              
| | Change in
    estimate related to lease-related liabilities for sites previously identified for closure
    or sale                                                                                |                                | 1,933,000     | 
| |                                                                                                                                                                                                    |                                |               | 
| |                                                                                                                                                                                                    | Total
    restructuring income | $ (145,000)   | 
| |                                                                                                                                                                                                    |                                |               | 



Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
    for closure or sale that were closed, sold or disposed of during the second quarter of
    fiscal 2003 ($2,195,000 of restructuring income)
- Severance for employees terminated in the second quarter of fiscal 2003 ($117,000 of
    restructuring expense)
- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1,933,000 of restructuring expense)



During the first quarter of fiscal 2003, the Company recorded
restructuring income of $1,736,000 consisting of the following components:

| | Change in
    estimate related to lease related liabilities for sites previously identified for closure
    or sale that were closed, sold or disposed of during the first quarter of fiscal 2003 |                                | $ (441,000)   | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------- | 
| |                                                                                                                                                                                                   |                                |               | 
| | Change in
    estimate related to lease-related liabilities for sites previously identified for closure
    or sale                                                                               |                                | (1,295,000)   | 
| |                                                                                                                                                                                                   |                                |               | 
| |                                                                                                                                                                                                   | Total
    restructuring income | $ (1,736,000) | 



Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
    for closure or sale that were closed, sold or disposed of during the first quarter of
    fiscal 2003 ($441,000 of restructuring income)
- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1,295,000 of restructuring income)

As of September 27, 2003, the components of the accruals related to the
  Company's restructuring activities are accrued liabilities of $2.8 million and other
  long-term obligations of $8.7 million.

The following table summarizes accruals related to the Company's
restructuring activities during the first nine months of fiscal 2003 (in thousands):

|                              |  | 1999     |  |         |  |          |  |          |  |         |  |          |             |  |        
|----------------------------- |  | -------- |  | ------- |  | -------- |  | -------- |  | ------- |  | -------- | ----------- |  | -------
|EXIT                          |  | AND      |  | Q2      |  | Q4       |  | Q2       |  | Q4      |  | Q4       | Q3          |  |        
|PLANS                         |  | PRIOR    |  | 2000    |  | 2000     |  | 2001     |  | 2001    |  | 2002     | 2003        |  | TOTAL  
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Balance:                      |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Dec 28, 2002                  |  | $ 2,123  |  | $ 1,162 |  | $ 2,351  |  | $ 6,032  |  | $ 2,844 |  | $ 3,552  | $    
    - |  | $18,064
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|New accruals:                 |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Lease-related
    liabilities |  | 313      |  | (250)   |  | (230)    |  | (701)    |  | (868)   |  | -        | -           |  | (1,736)
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Cash paid:                    |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Severance                     |  | -        |  | -       |  | -        |  | (1)      |  | -       |  | -        | -           |  | (1)    
|Lease-related
    liabilities |  | (133)    |  | (73)    |  | (170)    |  | (494)    |  | (133)   |  | -        | -           |  | (1,003)
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Balance:                      |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|March 29, 2003                |  | $ 2,303  |  | $ 839   |  | $ 1,951  |  | $ 4,836  |  | $ 1,843 |  | $ 3,552  | $    
    - |  | $15,324
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|New accruals:                 |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Severance                     |  | -        |  | -       |  | -        |  | -        |  | -       |  | 117      |             |  | 117    
|Lease-related
    liabilities |  | 477      |  |         |  | 1,726    |  | (107)    |  | (26)    |  | (2,332)  |             |  | (262)  
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Cash paid:                    |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Severance                     |  | -        |  | -       |  | -        |  | -        |  | -       |  | (41)     | -           |  | (41)   
|Lease-related
    liabilities |  | (210)    |  | (76)    |  | (295)    |  | (148)    |  | (1,817) |  | (52)     | -           |  | (2,598)
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Balance:                      |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|June 28, 2003                 |  | $ 2,570  |  | $ 763   |  | $ 3,382  |  | $ 4,581  |  | $ -     |  | $ 1,244  | $    
    - |  | $12,540
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|New accruals:                 |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Lease-related
    liabilities |  |          |  | (523)   |  |          |  |          |  |         |  | (89)     | 70          |  | (542)  
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Cash paid:                    |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Severance                     |  | -        |  | -       |  | -        |  | -        |  | -       |  | (70)     | -           |  | (70)   
|Lease-related
    liabilities |  | (135)    |  | (23)    |  | (73)     |  | (135)    |  |         |  | (46)     | (12)        |  | (424)  
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Balance:                      |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        
|Sep 27, 2003                  |  | $ 2,4351 |  | $ 2171  |  | $ 3,3091 |  | $ 4,4461 |  | $       |  | $ 1,0392 | $   581     |  | $11,504
|                              |  |          |  |         |  |          |  |          |  |         |  |          |             |  |        

|Note: | 1. The restructuring accrual balance
    consists of lease-related liabilities.                                             
|----- | ----------------------------------------------------------------------------------------------------------------------------
|      | 2. The restructuring accrual balance
    consists of lease-related liabilities and $6,000 for employee termination benefits.



14

---



|11. | Income Taxes
|--- | ------------

The Company has an $18.5 million net deferred tax asset as of September
27, 2003, primarily as a result of net operating loss carry forwards and temporary
differences related to restructuring and asset impairment charges. For the three months
ended September 27, 2003, the Company recorded $551,000 of income tax benefit, primarily
as a result of a loss before taxes of $1.4 million during the period. For the nine months
ended September 27, 2003, the Company recorded $1.8 million of income tax expense, as a
result of income before income taxes of $4.5 million during the period. The recoverability
of the net deferred tax asset is primarily dependent upon the Company generating
sufficient taxable income in the future. Although realization of the net deferred tax
asset is not assured, the Company believes it is more likely than not that the Company
will generate sufficient taxable income in the future to realize the full amount of the
deferred tax asset. The Company's assessment is based on projections that assume that the
Company can maintain its current store contribution margin. Furthermore, the Company
expects to maintain the aggregate sales growth experienced over the past five years, which
would generate additional taxable income. The primary uncertainty related to the
realization of the deferred tax asset is the Company's ability to achieve its four-year
business plan and generate future taxable income to realize the full amount of the
deferred tax asset. The Company believes that the sales, gross margin, store contribution
margin, and selling, general and administrative expenses assumptions in its four-year
business plan are reasonable and, more likely than not, attainable. The Company will
continue to assess the recoverability of the net deferred tax asset, and to the extent it
is determined in the future that a valuation allowance is required, it will be recognized
as a charge to earnings at that time.



|12. | Subsequent Event
|--- | ----------------

In October 2003, the Company and its primary distributor, Tree of Life
(TOL), agreed to terminate their current primary distribution relationship in the first
quarter of fiscal 2004, and to negotiate the terms of a secondary distribution
relationship. The Company plans to exercise a conversion option with its secondary
distributor, United Natural Foods, Inc. (UNFI), to transition its primary distribution
business to UNFI at competitive terms. This conversion will be complete within the first
quarter of 2004 and TOL has committed to continue to support the Company's stores during
the transition to UNFI. While the transition is expected to create some disruption in the
stores, the Company believes that it will be minimal because of the past primary and
current secondary distribution relationship with UNFI.



|13. | Related Party
    Transactions
|--- | ------------------------------

In September 2002, the Company filed suit against Michael Gilliland and
Elizabeth Cook, former officers and directors and greater than 5% stockholders of the
Company, together with two individuals and three limited liability corporations, for a
temporary restraining order and damages related to a breach of Mr. Gilliland's
non-competition covenant, contained in his 1996 employment agreement, arising from the
opening of a competitive grocery store in New Mexico. A jury trial is scheduled for
October 2004.



|14. | Contingencies
|--- | -------------

Wild Oats Markets Canada, Inc., as successor to Alfalfa's Canada, Inc.,
a Canadian subsidiary of the Company, is a defendant in Helen Fakhri and Ady Aylon, as
Representative Plaintiffs v. Alfalfa's Canada, Inc., a class action suit brought in
the Supreme Court, British Columbia, Canada in October 2002 by representative plaintiffs
alleging to represent two classes of plaintiffs - those who contracted Hepatitis A
allegedly through the consumption of food purchased at a Capers Community Market in the
spring of 2002, and those who were inoculated against Hepatitis A as a result of news
alerts by Capers and the Vancouver Health Authority. A hearing for certification of the
action as a class action was held in October 2003. The Company intends to vigorously
defend the suit. The Company is not able to estimate the potential outcome of the suit at
this time.



15

---

The Company is named as defendant in various actions and proceedings
arising in the normal course of business. In all of these cases, the Company is denying
the allegations and is vigorously defending against them and, in some cases, has filed
counterclaims. Although the eventual outcome of the various lawsuits cannot be predicted,
it is management's opinion that these lawsuits will not result in liabilities that would
materially affect the Company's consolidated results of operations, financial position, or
cash flows.

During the normal course of its business, the Company has provided
certain indemnities under which it may be required to make payments in relation to certain
transactions. These indemnities include indemnities to the Company's landlords for losses
arising from the Company's use and occupation of leased premises and indemnities to
directors and officers of the Company to the maximum extent permitted by the laws of the
State of Delaware. The duration of these indemnities varies, and in certain cases, is
indefinite. In addition, the majority of these indemnities do not provide for any
limitation of the maximum potential future payments the Company would be obligated to
make. As such, the Company is unable to estimate with any reasonableness its potential
exposure under the indemnities. The Company has not recorded any liability for the
indemnities in the accompanying consolidated balance sheets. The Company does, however,
accrue for losses for any known contingent liability, including those that may arise from
indemnification provisions, when future payment is both reasonably determinable and
probable. The Company carries specific and general liability insurance policies, which the
Company believes would provide, in most circumstances, some, if not total, recourse to any
claims arising from these indemnifications.



Item 2.  Management's Discussion And Analysis Of
Financial Condition And Results Of Operations

This report on Form 10-Q contains certain forward-looking statements
regarding our future results of operations and performance. Important factors that could
cause differences in results of operations include, but are not limited to, disruption
caused by the transition to a new primary distributor, the timing and execution of new
store openings, relocations, remodels, sales and closures; the timing and impact of
promotional and advertising campaigns; the impact of competition; the ability to obtain
necessary inventory; changes in management information needs; changes in customer needs
and expectations; governmental and regulatory actions; general industry or business trends
or events; changes in economic or business conditions in general or affecting the natural
foods industry in particular; and competition for and the availability of sites for new
stores and potential acquisition candidates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Cautionary Statement Regarding
Forward-Looking Statements."



Overview

Quarterly Results and Change in Distribution Relationship; Operational
Improvements. The third quarter of fiscal 2003 was challenging for overall Company
performance. The continued soft economy, coupled with inconsistencies in supply chain
performance that resulted in lower than expected in-stock levels, coupled with continued
spending for marketing to drive customer traffic and increased labor spending to
compensate for the supply chain difficulties, contributed to a lower overall sales level.
  After the end of the fiscal quarter, we reached an agreement with Tree of Life,
Inc. to terminate our primary distribution relationship.

Notwithstanding the difficult quarter, the Company continues to
implement its growth plans for 2003 and beyond, including continued investment in
infrastructure for operational improvements and future growth, including:

- new expanded private label program
- enhanced customer service and staff training
- centralized buying and pricing
- centralized back door receiving and replenishment
- new item introductions
- validated asset tracking
- remodeling and resetting merchandise in our stores





16

---

An integral part of our growth plans is our real estate strategy, which
we continue to execute. As of November 03, 2003, we have signed leases or letters of
intent for 36 proposed new sites opening in the fourth quarter of fiscal 2003, fiscal 2004
and fiscal 2005. These include locations for both our Wild Oats and Henry's Marketplace
stores.

Store formats. We operate two store formats: the natural foods
supermarket and farmers market formats. The natural foods supermarket format store,
operated under the Wild Oats

Store openings, closing, remodels and property dispositions. At
September 27, 2003, we had 101 stores located in 25 states and Canada, as compared to 100
stores in 23 states and Canada at the end of the third quarter of fiscal 2002. In the
third quarter of fiscal 2003, we opened one new store in Lexington, Kentucky and relocated
one smaller store to a new, substantially larger facility in Franklin, Tennessee. In
fiscal 2003, through the date of this report, we have opened five new stores in Costa
Mesa, California; Louisville and Lexington, Kentucky; Franklin, Tennessee and Portland,
Maine. We currently have new store sites under construction and scheduled for opening in
the remainder of 2003 in Denver, Colorado, Chino Hills, California and Park City, Utah. We
previously communicated our intent to open nine new stores in fiscal 2003; however,
because of construction delays, we plan to open our ninth store, a Wild Oats Natural
Marketplace in Colorado Springs, Colorado, in January 2004. In fiscal 2003, we completed
remodeling and/or major resetting of 20 of our stores, three of which were completed in
the third quarter of fiscal 2003.

At the end of the third quarter of fiscal 2003, we had an inventory of
11 vacant sites comprising closed store and office locations and excess unoccupied space
acquired during acquisitions or other leasing transactions, for which we have rent
obligations; appropriate accruals have been made for such obligations. In the third
quarter of fiscal 2003, we sublet one store site and closed one store in Nashville,
Tennessee, as part of relocation.



Factors Impacting Results of Operations

Our results of operations have been and will continue to be affected
by, among other things:

- the number, timing and mix of store openings, acquisitions, relocations, remodels or
    closings
- availability of capital
- impact of merchandising and marketing initiatives
- economic conditions
- competition
- labor issues
- loss of key management
- government regulations
- changes in suppliers, distributors and manufacturers
- volatility in our stock price

Our quarterly results of operations may differ materially from quarter
to quarter for a variety of reasons, including the timing and success of new store
openings, overall store performance, inconsistencies in supply chain performance, changes
in the economy, seasonality and the timing of holidays, significant increases or decreases
in prices for or availability of goods and services, competitive pressure and labor
disturbances, as well as other factors mentioned in this section.

New stores build their sales volumes and refine their merchandise
selection gradually and, as a result, generally have lower gross margins and higher
operating expenses as a percentage of sales than more mature stores. We anticipate that
the new stores opened in fiscal 2003 will experience operating losses for the first six
months of operation, in accordance with trends for new, prototype stores opened in fiscal
2002 and 2003.



17

---

The construction or acquisition of new stores, remodeling of existing
stores, as well as completion of capital purchases of new technology systems necessary for
efficient operation of our business require substantial capital expenditures. In the past,
our capital expenditures have been funded by cash generated from operations, bank debt and
equity financing proceeds. These sources of capital may not be available to us in the
future; in addition, our credit agreement contains limitations on our ability to make
capital expenditures.

We have implemented and continue to implement merchandising and
marketing initiatives in our stores. There can be no assurances that these programs will
be successful in those stores.

Downturns in general economic conditions in communities, states,
regions or the nation as a whole can affect our results of operations. While purchases of
food generally do not decrease in a slower economy, consumers may choose less expensive
alternative sources for food purchases. In addition, downturns in the economy make the
disposition of excess properties, for which the Company continues to pay rent and other
carrying costs, substantially more difficult as the markets become saturated with vacant
space and market rents decrease.

As mentioned previously, we compete with both natural foods, specialty
and conventional grocers. As competition in certain markets intensifies, our results of
operations may be negatively impacted through loss of sales, reduction in margin from
competitive price modifications, and disruptions in our employee base.

From time to time, we are subject to organizing attempts or area
standards pickets by labor unions, which distract management from operations and may
impact customer traffic to our stores. We also may realize the benefit of increased sales
due to strikes at other area grocery stores, such as those underway in California in the
fourth quarter of fiscal 2003.

Our ability to attract, hire and retain qualified employees at store
and home-office levels is critical to our continued success. Our future direction and
success is dependent in large part on the continued services of certain key executive
officers. Loss of any key officer may have an adverse affect on current operations and
future growth programs.

We are subject to a myriad of local, state and federal regulations
governing the operation of our stores and support facilities. Such laws can have a
material impact on our sales volume, costs of goods and direct store expenses. In
addition, from time to time we are audited by various governmental agencies for compliance
with existing laws, and we could be subject to fines or operational modifications as a
result of noncompliance.

The Company currently purchases approximately 30% of its aggregate cost
of goods for all product categories for all stores from its existing primary distributor,
Tree of Life, Inc. Any significant disruption in the supply of goods from Tree of Life or
other distributors or vendors could have a material impact on our overall sales volume and
cost of goods. We have announced that we will be transitioning from Tree of Life to UNFI
as our primary distributor, with the transition expected to be completed in the first
quarter of 2004. We expect some disruption in supply and store level operations resulting
from the transition during the fourth quarter of fiscal 2003 and the first quarter of
fiscal 2004.

Our stock price has been and continues to be fairly volatile.
Volatility in our stock price may affect our future ability to raise proceeds from equity
financings, enter into borrowing relationships, or affect our ability to obtain new store
sites on favorable economic terms.

Critical Accounting Policies and Estimates. Our discussion and
analysis of the Company's financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets
and liabilities that are contingent upon future events or otherwise not readily
determinable. The appropriateness of these policies and



18

---

estimates are evaluated on an on going basis with the resulting
adjustments from any revisions reflected in the financial statements. Actual results may
differ from our estimates.

We believe the following accounting policies affect the material
estimates used in the preparation of our consolidated financial statements.

- Insurance and Self-Insurance Reserves - The Company is self-insured for certain losses
    relating to workers' compensation claims, general liability, and employee medical and
    dental benefits. The Company has purchased stop-loss coverage to limit its exposure to any
    significant levels of claims. Self-insured losses are accrued based upon the Company's
    estimates of the aggregate insured claims incurred using certain actuarial assumptions
    followed in the insurance industry and the Company's historical claim experiences. If the
    Company experiences an increase in claims, if actuarial assumptions are inaccurate, or if
    insurance industry costs increase beyond current expectations, then additional reserves
    may be required. Based upon critical review of actual historical claims development
    patterns for the Company, as well as for the industry, in the second quarter of fiscal
    2003, the Company revised certain claim development assumptions used in estimating its
    workers' compensation and general liability reserves for earlier claim years, resulting in
    a reduction of selling, general, administrative expenses, and direct store expenses.
- Inventory Valuation - Store inventories are valued principally at the lower of cost or
    market, with cost primarily determined under the retail inventory method on a first-in
    first-out basis. Certain highly perishable inventories are valued primarily at the lower
    of cost or market, with cost determined on a first-in, first-out basis. Under the retail
    inventory method, the valuation of inventories at cost and the resulting gross margins are
    determined by applying a cost-to-retail ratio for various groupings of similar items to
    the retail value of inventories. Inherent in the retail inventory method calculations are
    certain management judgments and estimates, including shrinkage, which could impact the
    ending inventory valuation at cost as well as the resulting gross margins.  In
    conjunction with the implementation of improved systems and operating procedures,
    including back door receiving, the Company is evaluating the merits of changing its
    inventory valuation method from the retail method to using an actual cost method, and
    expects to make a determination regarding such change during the next twelve months.

See our Fiscal 2002 Annual Report filed on Form 10-K for the period
ended December 28, 2002, for additional disclosures of critical accounting policies. See
also "Notes to Consolidated Financial Statements - Note 2 - Implementation of New
Accounting Pronouncements -for disclosure of the impact upon implementation of new
accounting pronouncements.





19

---

Results of Operations

The following table sets forth for the periods indicated, certain
selected income statement data expressed as a percentage of sales:

| |                                                           |  |        | THREE MONTHS
    ENDED |        | NINE
    MONTHS ENDED
| | --------------------------------------------------------- |  | ------ | ---------------------- | ------ | ---------------------
| |                                                           |  |        | Sep 27,                |        | Sep 28,              
| |                                                           |  |        | 2003                   |        | 2002                 
| |                                                           |  |        |                        |        |                      
| | Sales                                                     |  | 100.0% |                        | 100.0% |                      
| | Cost of goods sold and occupancy
       costs             |  | 70.9   |                        | 70.6   |                      
| |                                                           |  |        |                        |        |                      
| | Gross margin                                              |  | 29.1   |                        | 29.4   |                      
| | Direct store expenses                                     |  | 22.4   |                        | 21.3   |                      
| | Loss (gain) on disposal of assets                         |  | 0.3    |                        | (0.0)  |                      
| | Selling, general and
    administrative    expenses       |  | 6.5    |                        | 5.6    |                      
| | Pre-opening expenses                                      |  | 0.3    |                        | 0.1    |                      
| | Restructuring and asset impairment
       charge (income) |  | 0.1    |                        | (0.1)  |                      
| |                                                           |  |        |                        |        |                      
| | Income (loss) from operations                             |  | (0.5)  |                        | 2.5    |                      
| | Interest income                                           |  | 0.1    |                        | 0.1    |                      
| | Interest expense                                          |  | (0.2)  |                        | (1.0)  |                      
| | Loss on early extinguishment of
       debt               |  | 0.0    |                        | 0.0    |                      
| |                                                           |  |        |                        |        |                      
| | Income (loss) before income taxes                         |  | (0.6)  |                        | 1.6    |                      
| | Income tax expense (benefit)                              |  | (0.2)  |                        | 0.6    |                      
| |                                                           |  |        |                        |        |                      
| | Net income (loss)                                         |  | (0.4)% |                        | 1.0%   |                      
| |                                                           |  |        |                        |        |                      
| |                                                           |  |        |                        |        |                      



Sales. Sales for the three months ended September 27, 2003,
increased 3.9% to $237.0 million from $228.1 million in the comparable 2002 period. Sales
for the nine months ended September 27, 2003, increased 2.6% to $715.3 million from $697.3
million in the comparable 2002 period. The quarter and year-to-date increases were
primarily attributed to the addition of five new stores in the store base, including one
relocation, offset by inconsistent supply chain performance throughout the first nine
months of 2003, with such inconsistencies resulting in slightly higher levels of
out-of-stocks of products in the third quarter of fiscal 2003. We calculate comparable
store sales net of coupons and discounts commencing in the thirteenth full month of
operations for new, relocated and acquired stores. Comparable store sales increased 0.8%
over the third quarter of fiscal 2002, due to the supply chain inconsistencies mentioned,
as well as the continued soft economy. Because of the sales disruption we may experience
as a result of our announced transition to a new distributor, commencing in the fourth
quarter of fiscal 2003 and with an anticipated completion by the end of the first quarter
of fiscal 2004, offset by increased sales resulting from extensive labor strikes at
conventional grocery stores in Southern California and St. Louis, Missouri, we cannot
project expected sales, gross profit or direct store expense performance for the remainder
of fiscal 2003.

Gross Profit. Gross profit as a percent of sales for the three and
nine months ended September 27, 2003 was 29.1% and 29.5%, respectively, as compared to
29.4% and 29.6% for the same periods in fiscal 2002. These declines were due to
accelerated depreciation for the planned closure or relocation of distribution centers and
warehouses in the third quarter; planned mark-downs to reduce inventory in Natural Living
product categories to eliminate slow-moving products and make room for new products
primarily in the third quarter; and supply chain inconsistencies which resulted in
increased purchases from secondary and tertiary distributors at a higher cost during
fiscal 2003.



20

---

Direct Store Expenses. Direct store expenses for the three months
ended September 27, 2003 increased 9.2% to $53.1 million from $48.6 million in the
comparable 2002 period. Direct store expenses for the nine months ended September 27, 2003
increased 2.5% to $154.3 million from $150.6 million in the comparable 2002 period, due to
increased labor staffing to stock shelves and perform other duties necessitated by the
increased supply chain difficulties that we experienced in the quarter. As a percentage of
sales, direct store expenses increased to 22.4% in the third quarter of fiscal 2003 from
21.3% in the comparable 2002 period, for the reasons mentioned above.

Loss (Gain) on Disposal of Assets. Loss (gain) on disposal of
assets for the nine months ended September 27, 2003 increased to a $2.0 million loss from
a $27,000 gain in the same period in fiscal 2002. During the first quarter of fiscal 2003,
we substantially completed a physical inventory of fixtures and equipment and recorded a
$1.5 million loss on disposal of fixtures and equipment (approximately 1.2% of our fixed
assets carrying value) that we will no longer use in our stores. During the third quarter
of fiscal 2003, a physical count of all office and support facility capital assets and
software was completed and a $559,000 loss on disposal of assets was recorded.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 27, 2003 increased 21.8% to
$15.5 million from $12.7 million in the same period in fiscal 2002. Selling, general and
administrative expenses for the nine months ended September 27, 2003 increased 15.9% to
$48.2 million from $41.6 million in the same period in fiscal 2002. As a percentage of
sales, selling, general and administrative expenses increased to 6.5% in the third quarter
of fiscal 2003 from 5.6% in the same period in fiscal 2002, due to increased
administrative costs related to our new store opening program, as well as continued
investments to improve our information technology systems. Additionally, the comparable
2002 period expense benefited from a favorable legal judgment.

Pre-Opening Expenses. Pre-opening expenses for the three months
ended September 27, 2003, increased to $616,000 compared to $237,000 during the same
period in fiscal 2002. Pre-opening expenses for the nine months ended September 27, 2003,
increased 31.0% over the same period in fiscal 2002 due to the opening of five new stores
in the first nine months of fiscal 2003, as compared to one new store in the same period
in 2002. As a percentage of sales, pre-opening expenses increased to 0.3% in the third
quarter of fiscal 2003 from 0.1% in the same period in fiscal 2002, due to the opening of
two new stores, as compared to the opening of no new stores in the same period in 2002.
Pre-opening expenses should increase in the aggregate in the fourth quarter as we prepare
for three new store openings in the remainder of fiscal 2003.

Restructuring and Asset Impairment Income. During the third quarter
of fiscal 2003, we recorded a restructuring and asset impairment charge of $134,000.
Details of the significant components are as follows:

- Lease-related liabilty for site closed during the third quarter of fiscal 2003 ($70,000
    of restructuring expense)
- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($612,000 of restructuring income)
- In addition to the restructuring income described above, management also identified
    asset impairment charges of $676,000 in accordance with the provisions of SFAS 144, Accounting
    for the Impairment or Disposal of Long-Lived Assets for two operating stores.
    These assets became impaired during the third quarter of fiscal 2003 because the projected
    cash flows of each store at the time were not sufficient to fully recover the carrying
    value of the stores' long-lived assets. In determining whether an impairment exists, we
    estimate the stores' future cash flows on an undiscounted basis, and if the cash flows are
    not sufficient to recover the carrying value, then we use a discounted cash flow based on
    a risk-adjusted discount rate, to adjust its carrying value of the assets and records a
    provision for impairment as appropriate. We believe the weak performance from the stores
    included in the asset impairment charge was caused by depressed markets and increased
    competition. We continually reevaluate our stores' performance to monitor the carrying
    value of its long-lived assets in comparison to projected cash flows.

During the second quarter of fiscal 2003, we recorded restructuring
income of $145,000. Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
    for closure or sale that were closed, sold or disposed of during the second quarter of
    fiscal 2003 ($2,195,000 of restructuring income)
- Severance for employees terminated in the second quarter of fiscal 2003 ($117,000 of
    restructuring expense)
- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale $(1,933,000 of restructuring expense)

During the first quarter of fiscal 2003, the Company recorded
restructuring income of $1,736,000 consisting of the following components:

- Change in estimate related to lease-related liabilities for sites previously identified
    for closure or sale that were closed, sold or disposed of during the first quarter of
    fiscal 2003 ($441,000 of restructuring income)
- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1,295,000 of restructuring income)

Interest Income. Interest income for the three and nine months
ended September 27, 2003 decreased 14.8% and 8.1% respectively, as compared to the same
periods in fiscal 2002 due to a lower level of daily invested funds.

Interest Expense. Interest expense for the three months ended
September 27, 2003 decreased 79.6% to $484,000 from $2.4 million in the same period in
fiscal 2002, due to decreased borrowings during the three-month period, the lower interest
rate on our current credit facility entered into in February 2003, and the expiration of
the swap agreement in August 2003. Interest expense for the nine-month period ended
September 27, 2003 decreased 67.5% to $2.3 million from $7.1 million for the same period
in fiscal 2002, due to the reasons mentioned above. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and Capital
Resources"below.

Loss on Early Extinguishment of Debt. Loss on early extinguishment
of debt for the nine months ended September 27, 2003 was $186,000 due to the refinancing
of the credit facility in the first quarter, which required the write-off of the
un-amortized debt costs associated with the old facility.

Income Tax Expense. For the three months ended September 27, 2003,
we recorded $551,000 million of income tax benefit, as a result of a loss before income
taxes of $1.4 million during the period. Income tax expense for the nine months ended
September 27, 2003 is $1.8 million as a result of income before taxes of $4.5 million
during the same period. Our effective tax rate on income from continuing operations is
expected to be in the range of 38.5% to 40.0% for fiscal 2003 as compared to a fiscal 2002
rate of 40.7%. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Liquidity and Capital Resources"below.



Liquidity and Capital Resources

Our primary sources of capital have been cash flow from operations
(which includes trade payables), bank indebtedness, and the sale of equity securities.
Primary uses of cash have been the financing of new store development, new store openings,
relocations, remodels and acquisitions and repayment of debt.

Net cash provided by operating activities was $26.2 million during the
first nine months of fiscal 2003 as compared to $25.1 million during the same period in
fiscal 2002. Cash from operating activities increased during this period primarily due to
better management of working capital. We have not required significant external financing
to support inventory requirements at our existing and new stores because we have been able
to rely on vendor financing for most of the inventory costs, and we anticipate that vendor
financing will continue to be available for new store openings.

Net cash used in investing activities was $21.7 million during the
first nine months of fiscal 2003 as compared to $6.7 million during the same period in
fiscal 2002. The increase is due to capital expenditures for new stores and remodels.

Net cash used in financing activities was $4.7 million during the first
nine months of fiscal 2003 as compared to $20.1 million provided during the same period in
fiscal 2002. The decrease in cash provided is due to a $51.2 million stock offering offset
by $31.5 million in debt repayments in the third quarter of fiscal 2002.



23

---

We have a net deferred tax asset of $18.5 million on our balance sheet
as of September 27, 2003, primarily as a result of net operating loss carry forwards and
temporary differences related to restructuring and asset impairment charges. The
recoverability of the net deferred tax asset is primarily dependent upon the Company
generating sufficient taxable income in the future, which if achieved, will reduce cash
required for payment of federal and state income taxes. Although realization of the net
deferred tax asset is not assured, we believe it is more likely than not that the Company
will generate sufficient taxable income in the future to realize the full amount of the
deferred tax asset. Our assessment is based on projections that assume that the Company
can maintain its current store contribution margin. Furthermore, we expect to maintain the
sales growth experienced over the past five years that would generate additional taxable
income. The primary uncertainty related to the realization of the deferred tax asset is
the Company's ability to achieve its four-year business plan and generate future taxable
income to realize the full amount of the deferred tax asset. We believe that the sales,
gross margin, store contribution margin, and selling, general and administrative expenses
assumptions in our four-year business plan are reasonable and, more likely than not,
attainable. We will continue to assess the recoverability of the net deferred tax asset
and to the extent it is determined in the future that a valuation allowance is required,
it will be recognized as a charge to earnings at that time.

Credit Facility. Our credit facility has a $75.0 million limit,
which we believe to be adequate for our current borrowing needs, with a three-year term
maturing February 2006, with a one-year renewal option. Under the facility, we have the
option to increase the total facility to $135.0 million through the addition of new
lenders and through the agreement of the current lending group to increase their total
commitments. Outstanding borrowings under the facility were approximately $37.3 million as
of September 27, 2003.

As part of the facility, we have given our lenders collateral in the
form of cash, equipment and fixtures, inventory, and other assets. We have also granted
certain leasehold mortgages. The facility contains limitations on capital expenditures and
the signing of new leases, although we believe such limitations will not restrict our
announced growth plans. The interest rate on the facility is currently either prime plus
1.0% or one-month LIBOR plus 2.25% at our election, and the rates modify depending on the
ratio of average total funded debt, as defined under the credit facility, plus six times
rent expense, to EBITDAR for the four fiscal quarter periods then ended, as calculated on
our quarterly compliance certificate. Additionally, we are charged a commitment fee on the
unused portion of the line ranging from 0.25% to 0.5% based on performance objectives as
defined in the credit agreement. We believe that cash generated from operations and
available under our credit facility will be sufficient to meet our capital expenditure
requirements in fiscal 2003.

Capital Expenditures. We spent approximately $6.9 million during
the third quarter and $22.1 million during the first nine months of fiscal 2003 for new
store construction, remodels and other capital expenditures. Our average capital
expenditures to open a leased store, including leasehold improvements, equipment and
fixtures, have ranged from approximately $2.0 million to $5.0 million historically,
excluding inventory costs and initial operating losses. We anticipate that the average
capital expenditures to open a natural foods supermarket format store will be $2.5 million
to $3.0 million in the future; however, our ability to negotiate turnkey leases in the
future will result in substantially lower capital expenditure per store, in return for a
slightly higher rent rate over the lease term. Our average capital expenditures to open a
farmer's market format store are estimated at $1.5 million to $2.0 million in the future.
Delays in opening new stores may result in increased capital expenditures and increased
pre-opening costs for the site, as well as lower than planned sales for the Company.





24

---

Cautionary Statement Regarding Forward-Looking Statements

This Report on Form 10-Q contains "forward-looking
statements," within the meaning of the Private Securities Litigation Reform Act of
1995, which involve known and unknown risks. Such forward-looking statements include
statements as to the Company's plans to open, acquire or relocate additional stores; the
anticipated performance of such stores; the impact of competition and current economic
uncertainty; the sufficiency of funds to satisfy the Company's cash requirements through
the remainder of fiscal 2003, our expectations for comparable store sales; the impact of
changes resulting from our announced transition from our current primary distributor to a
new primary distributor; the availability of inventory during the transition, expected
pre-opening expenses and capital expenditures; and other statements containing words such
as "believes," "anticipates," "estimates,"
"expects," "may," "intends" and words of similar import or
statements of management's opinion. These forward-looking statements and assumptions
involve known and unknown risks, uncertainties and other factors that may cause the actual
results, market performance or achievements of the Company to differ materially from any
future results, performance or achievements expressed or implied by such forward-looking
statements. Important factors that could cause differences in results of operations
include, but are not limited to, unexpected difficulties in the transition to a new
primary distributor, inability to obtain sufficient products, the timing and execution of
new store openings, relocations, remodels, sales and closures; the impact of competition;
changes in management information needs; changes in customer needs and expectations;
governmental and regulatory actions; general industry or business trends or events;
changes in economic or business conditions in general or affecting the natural foods
industry in particular; and competition for and the availability of sites for new stores
and potential acquisition candidates. The Company undertakes no obligation to update any
forward-looking statements in order to reflect events or circumstances that may arise
after the date of this Report.



Item 3.  Quantitative and Qualitative
Disclosures About Market Risk

In the normal course of business, the Company is exposed to
fluctuations in interest rates and the value of foreign currency. The Company employs
various financial instruments to manage certain exposures when practical.

The Company is exposed to foreign currency exchange risk. The Company
owns and operates three natural foods supermarkets and a commissary kitchen in British
Columbia, Canada. The commissary supports the three Canadian stores and does not
independently generate sales revenue. Sales made from the Canadian stores are made in
exchange for Canadian dollars. To the extent that those revenues are repatriated to the
United States, the amounts repatriated are subject to the exchange rate fluctuations
between the two currencies. The Company does not hedge against this risk because of the
small amounts of funds at risk.

The Company's exposure to interest rate changes is primarily related to
its variable rate debt issued under its credit facility. On February 26, 2003, the Company
refinanced the credit facility and reduced the total commitment available to a $75.0
million revolving line of credit, with a three-year term expiring February 25, 2006. The
interest rate on the amended facility is currently either prime plus 1.0% or one-month
LIBOR plus 2.25%, at our election, and the rates modify depending on the ratio of average
total funded debt, as defined under the credit facility, plus six times rent expense, to
EBITDAR for the four fiscal quarter periods then ended, as calculated on our quarterly
compliance certificate. Because the interest rate on the facility is variable, based upon
the prime rate or LIBOR, the Company's interest expense and net income are affected by
interest rate fluctuations. If interest rates were to increase or decrease by 100 basis
points, the result, based upon the existing outstanding non-hedged variable rate debt as
of September 27, 2003, would be an annual increase or decrease of approximately $373,000
in interest expense and a corresponding decrease or increase of approximately $228,000 in
the Company's net income after taxes.

In September 2000, as required by the Company's former credit facility,
the Company entered into an interest rate swap to hedge its exposure on variable rate debt
positions. Variable rates are predominantly linked to LIBOR as determined by one-month
intervals. The interest rate provided by the swap fixed one-month LIBOR at 6.7%. At August
1, 2003, the date upon which the swap expired, the notional principal amount of the
interest rate swap agreement was $30.0 million. There is no obligation to renew the swap
under the refinanced facility. The notional amount is the amount used for the calculation
of interest payments that are exchanged over the life of the swap transaction on the
amortized principal balance. In the third quarter of fiscal 2003, the loss, net of taxes,
included in other comprehensive income for this cash flow hedge was approximately $85,000.



25

---

Item 4. Controls and Procedures

We maintain a system of controls and procedures designed to provide
reasonable assurance as to the reliability of the financial statements and other
disclosures included in this report, as well as to safeguard assets from unauthorized use
or disposition. We evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as defined in Exchange Act Rule 13a-14 under
supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, as of September 27, 2003. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material information
required to be included in our periodic Securities and Exchange Commission filings. No
significant changes were made to our internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation. The design
of any future system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions regardless of
how remote.





26

---

Part II.  OTHER INFORMATION



Item 1.  Legal Proceedings

In October of 2003, a hearing was held on the class certification
motion by the plaintiffs in Helen Fakhri and Ady Aylon, as Representative Plaintiffs v.
Alfalfa's Canada, Inc., a class action suit brought in the Supreme Court, British
Columbia, Canada in October 2002 by representative plaintiffs alleging to represent two
classes of plaintiffs - those who contracted Hepatitis A allegedly through the consumption
of food purchased at a Capers Community Market in the spring of 2002, and those who were
inoculated against Hepatitis A as a result of news alerts by Capers and the Vancouver
Health Authority.  In October 2003 a hearing on class certification was held, and the
parties are awaiting the judicial decision concerning certification. To date, the Company
has reached a favorable settlement arrangement with seven of the eight identified parties
who the Health Authority believes contracted Hepatitis A through the consumption of
Caper's food. The Company intends to vigorously defend the suit. The Company is not able
to estimate the potential outcome of the suit at this time.

The Company is named as defendant in various actions and proceedings
arising in the normal course of business. In all of these cases, the Company is denying
the allegations and is vigorously defending against them and, in some cases, has filed
counterclaims. Although the eventual outcome of the various lawsuits cannot be predicted,
it is management's opinion that these lawsuits will not result in liabilities that would
materially affect the Company's consolidated results of operations, financial position, or
cash flows.



Item 2.  Changes in Securities and Use of Proceeds

None.



Item 3.  Defaults Upon Senior Securities

None.



Item 4.  Submission of Matters to a Vote of Security
Holders

None



Item 5.  Other Information

The Audit Committee of the Board of Directors pre-approves all
non-audit services provided by the Company's independent accountants,
PricewaterhouseCoopers LLP. No fees were billed for non-audit services rendered in the
third quarter of fiscal 2003.



27

---



Item 6.

|(a)                             |   | Exhibits. The following
    exhibits to this report filed on Form 10-Q are furnished as required by Item 601 of
    Regulation S-K:  
|------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------
|                                |   | Exhibit Number                                                                                                                       
|                                |   |                                                                                                                                      
|                                |   | 31.1+                                                                                                                                
|                                |   | 31.2+                                                                                                                                
|                                |   | 32.1+                                                                                                                                
|                                |   | 32.2+                                                                                                                                
|                                |   |                                                                                                                                      
|(b)                             |   | Reports on Form 8-K. The
    Company filed the following report on Form 8-K during the quarterly period ended September
    27, 2003:
|                                |   |                                                                                                                                      
|                                |   | (1)                                                                                                                                  
|                                |   | (2)                                                                                                                                  
|                                |  
|_______________________________ |  
|                                |  
|                                | + | Included herewith.                                                                                                                   





28

---

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boulder, County of Boulder, State of Colorado,
on the 10th day of November 2003.



| | Wild Oats Markets, Inc.                      
| | ---------------------------------------------
| | (Registrant)                                 
| |                                              
| |                                              
| | By: /s/ Edward F. Dunlap                     
| | Edward F. Dunlap                             
| | Executive Officer and Chief Financial Officer
| | (Principal Financial and Accounting Officer) 





29