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 
    JUNE 26, 2004OR( )
    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
    (I.R.S. Employer
    Identification Number)Incorporation or
    organization)






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 July 30, 2004, there were 28,441,868 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, June
      26, 2004 (unaudited) and December 27, 2003                                                  | 3 
|                       |  |                                                                                                                                     |   
|                       |  | Consolidated Statements of
      Income (unaudited), Three and Six Months Ended June 26, 2004 and June 28, 2003                     | 4 
|                       |  |                                                                                                                                     |   
|                       |  | Consolidated
      Statements of Comprehensive Income (unaudited), Three and Six Months Ended June 26, 2004
      and June 28, 2003 | 5 
|                       |  |                                                                                                                                     |   
|                       |  | Consolidated Statements
      of Cash Flows (unaudited), Six Months Ended June 26, 2004 and June 28, 2003                           | 6 
|                       |  |                                                                                                                                     |   
|                       |  | Notes to
      Consolidated Financial Statements (unaudited)                                                                        | 7 
|                       |  |                                                                                                                                     |   
|Item 2.                |  | Managements Discussion and Analysis of Financial Condition and Results of
      Operations                                         | 17
|                       |  |                                                                                                                                     |   
|Item 3.                |  | Quantitative and Qualitative Disclosures About Market Risk                                                                          | 27
|                       |  |                                                                                                                                     |   
|Item 4.                |  | Controls and Procedures                                                                                                             | 28
|                       |  |                                                                                                                                     |   
|                       |  |                                                                                                                                     |   
|PART II.               |  | OTHER INFORMATION                                                                                                                   |   
|                       |  |                                                                                                                                     |   
|Item 1.                |  | Legal Proceedings                                                                                                                   | 29
|                       |  |                                                                                                                                     |   
|Item 2.                |  | Changes in Securities                                                                                                               | 29
|                       |  |                                                                                                                                     |   
|Item 3.                |  | Defaults
      Upon Senior Securities                                                                                               | 30
|                       |  |                                                                                                                                     |   
|Item 4.                |  | Submission of Matters to a Vote of Security Holders                                                                                 | 30
|                       |  |                                                                                                                                     |   
|Item 5.                |  | Other Information                                                                                                                   | 30
|                       |  |                                                                                                                                     |   
|Item 6.                |  | Exhibits
      and Reports on Form 8-K                                                                                              | 31
|                       |  |                                                                                                                                     |   
|SIGNATURE AND EXHIBITS | 
|                       |  |                                                                                                                                     |   
|                       |  | Signatures                                                                                                                          | 32
|                       |  |                                                                                                                                     |   



---

PART
I.  FINANCIAL INFORMATION



Item
1.  Financial Statements



WILD OATS MARKETS, INC.

Consolidated
Balance Sheets

(in thousands, except share data)



|                                         |                                   |                                                                                                                                   |                               |          | June 26,    |          | December 27,
|---------------------------------------- | --------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -------- | ----------- | -------- | ------------
|                                         |                                   |                                                                                                                                   |                               |          | 2004        |          | 2003        
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   |                               |          | (unaudited) |          |             
|ASSETS                                   |                                   |                                                                                                                                   |                               |         
|                                         |                                   |                                                                                                                                   |                               |          |            
|                                         | Current assets:                   |                                                                                                                                   |                               |          |            
|                                         |                                   | Cash and cash equivalents                                                                                                         |                               | $ 65,771 |             | $ 17,400
|                                         |                                   | Inventories, net of reserves                                                                                                      |                               | 50,925   |             | 46,621  
|                                         |                                   | Accounts receivable, net of
    allowance for doubtful accounts                                                                   |                               | 2,627    |             | 4,038   
|                                         |                                   | Income tax receivable                                                                                                             |                               | 98       |             | 261     
|                                         |                                   | Prepaid expenses and other current
    assets                                                                                     |                               | 2,000    |             | 2,192   
|                                         |                                   | Deferred tax asset                                                                                                                |                               | 7,339    |             | 6,340   
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   | Total current assets          |          | 128,760     |          | 76,852      
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         | Property and equipment, net       |                                                                                                                                   | 145,279                       |          | 130,989    
|                                         | Goodwill, net                     |                                                                                                                                   | 106,084                       |          | 106,404    
|                                         | Other intangible assets, net      |                                                                                                                                   | 6,764                         |          | 6,976      
|                                         | Deposits and other assets         |                                                                                                                                   | 6,342                         |          | 2,932      
|                                         | Deferred tax asset                |                                                                                                                                   | 10,300                        |          | 12,438     
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   |                               |          | $ 403,529   |          | $ 336,591   
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   |                               |         
|LIABILITIES AND
    STOCKHOLDERS EQUITY |                                   |                                                                                                                                   |                               |         
|                                         |                                   |                                                                                                                                   |                               |          |            
|                                         | Current liabilities:              |                                                                                                                                   |                               |          |            
|                                         |                                   | Accounts payable                                                                                                                  |                               | $ 53,586 |             | $ 47,529
|                                         |                                   | Book overdraft                                                                                                                    |                               | 21,235   |             | 26,727  
|                                         |                                   | Accrued liabilities                                                                                                               |                               | 44,290   |             | 42,998  
|                                         |                                   | Current portion of capital leases                                                                                                 |                               | 40       |             | 14      
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   | Total current liabilities     |          | 119,151     |          | 117,268     
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         | Long-term debt and capital leases |                                                                                                                                   | 115,192                       |          | 30,179     
|                                         | Other long-term obligations       |                                                                                                                                   | 13,310                        |          | 14,058     
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   | Total Liabilities             |          | 247,653     |          | 161,505     
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   | 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, 30,366,823 and 30,063,421 shares issued,
       respectively |                               | 30       |             | 30      
|                                         |                                   | Additional paid-in capital                                                                                                        |                               | 220,983  |             | 217,400 
|                                         |                                   | Note receivable, related party                                                                                                    |                               | (11,112) |             | (10,815)
|                                         |                                   | Accumulated deficit                                                                                                               |                               | (29,057) |             | (31,777)
|                                         |                                   | Treasury stock, at cost: 1,977,800
    shares as of  June 26, 2004                                                                |                               | (24,999) |             | -       
|                                         |                                   | Accumulated other comprehensive
    income                                                                                        |                               | 31       |             | 248     
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   | Total stockholders equity    |          | 155,876     |          | 175,086     
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             
|                                         |                                   |                                                                                                                                   |                               |          | $ 403,529   |          | $ 336,591   
|                                         |                                   |                                                                                                                                   |                               |          |             |          |             

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



---

WILD OATS MARKETS, INC.

Consolidated
Statements of Income

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



|                                                                     |                                                              |                            |        |           | THREE MONTHS
    ENDED |           | SIX MONTHS ENDED
|-------------------------------------------------------------------- | ------------------------------------------------------------ | -------------------------- | ------ | --------- | ---------------------- | --------- | ----------------
|                                                                     |                                                              |                            |        |           | June 26,               |           | June 28,        
|                                                                     |                                                              |                            |        |           | 2004                   |           | 2003            
|                                                                     |                                                              |                            |        |           |                        |           |                 
|                                                                     |                                                              |                            |        |           |                        |           |                 
|Sales                                                                |                                                              | $ 251,697                  |        | $ 242,248 |                        | $ 515,492 |                 
|Cost of goods sold and occupancy
    costs                           |                                                              | 178,525                    |        | 171,026   |                        | 365,206   |                 
|                                                                     |                                                              |                            |        |           |                        |           |                 
|Gross profit                                                         |                                                              | 73,172                     |        | 71,222    |                        | 150,286   |                 
|Operating expenses:                                                  |                                                              |                            |        |           |                        |           |                 
|                                                                     | Direct store expenses                                        |                            | 56,271 |           | 50,327                 |           | 113,314         
|                                                                     | Selling, general and
    administrative    expenses          |                            | 14,418 |           | 16,797                 |           | 29,939          
|                                                                     | Loss (gain) on disposal of assets                            |                            | 48     |           | (100)                  |           | (22)            
|                                                                     | Pre-opening expenses                                         |                            | 1,626  |           | 101                    |           | 2,101           
|                                                                     | Restructuring and asset impairment
    charges (income), net |                            | (99)   |           | (145)                  |           | 165             
|                                                                     |                                                              |                            |        |           |                        |           |                 
|                                                                     |                                                              | Income from operations     |        | 908       |                        | 4,242     |                 
|                                                                     | Interest income                                              |                            | 222    |           | 179                    |           | 408             
|                                                                     | Interest expense                                             |                            | (540)  |           | (842)                  |           | (807)           
|                                                                     | Loss on early extinguishment of
    debt                     |                            | -      |           | -                      |           | -               
|                                                                     |                                                              |                            |        |           |                        |           |                 
|                                                                     |                                                              | Income before income taxes |        | 590       |                        | 3,579     |                 
|                                                                     | Income tax expense                                           |                            | 227    |           | 1,396                  |           | 1,670           
|                                                                     |                                                              |                            |        |           |                        |           |                 
|Net income                                                           |                                                              | $ 363                      |        | $ 2,183   |                        | $ 2,720   |                 
|                                                                     |                                                              |                            |        |           |                        |           |                 
|                                                                     |                                                              |                            |        |           |                        |           |                 
|Net income per common share:                                         |                                                              |                            |        |           |                        |           |                 
|                                                                     | Basic                                                        |                            | $ 0.01 |           | $ 0.07                 |           | $ 0.09          
|                                                                     | Diluted                                                      |                            | $ 0.01 |           | $ 0.07                 |           | $ 0.09          
|                                                                     |                                                              |                            |        |           |                        |           |                 
|Weighted average common shares
       outstanding, basic             |                                                              | 29,788                     |        | 29,775    |                        | 29,982    |                 
|Dilutive effect of stock options
    and restricted stock units      |                                                              | 921                        |        | 487       |                        | 878       |                 
|                                                                     |                                                              |                            |        |           |                        |           |                 
|Weighted average common shares
       outstanding, assuming dilution |                                                              | 30,709                     |        | 30,262    |                        | 30,860    |                 
|                                                                     |                                                              |                            |        |           |                        |           |                 



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



---

WILD OATS MARKETS, INC.

Consolidated
Statements of Comprehensive Income

(in thousands) (unaudited)

|                                   |                                                                                                                                   |       |       |         | THREE MONTHS
    ENDED |         | SIX MONTHS ENDED
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ----- | ----- | ------- | ---------------------- | ------- | ----------------
|                                   |                                                                                                                                   |       |       |         | June 26,               |         | June 28,        
|                                   |                                                                                                                                   |       |       |         | 2004                   |         | 2003            
|                                   |                                                                                                                                   |       |       |         |                        |         |                 
|                                   |                                                                                                                                   |       |       |         |                        |         |                 
|Net income                         |                                                                                                                                   | $ 363 |       | $ 2,183 |                        | $ 2,720 |                 
|                                   |                                                                                                                                   |       |       |         |                        |         |                 
|Other comprehensive income (loss): |                                                                                                                                   |       |       |         |                        |         |                 
|                                   | Foreign currency translation
    adjustments    arising during the period                                                         |       | (126) |         | 270                    |         | (218)           
|                                   | Recognition of hedge results to
    interest    expense during the period, net of tax of $0, $153, $0, and
    $316, respectively |       | -     |         | 256                    |         | -               
|                                   | Change in market value of cash
    flow    hedge during the period, net of tax of $0, $0, $0, and $12,
    respectively           |       | -     |         | 1                      |         | -               
|                                   |                                                                                                                                   |       |       |         |                        |         |                 
|                                   |                                                                                                                                   |       |       |         |                        |         |                 
|Other comprehensive income (loss)  |                                                                                                                                   | (126) |       | 527     |                        | (218)   |                 
|                                   |                                                                                                                                   |       |       |         |                        |         |                 
|                                   |                                                                                                                                   |       |       |         |                        |         |                 
|Comprehensive income               |                                                                                                                                   | $ 237 |       | $ 2,710 |                        | $ 2,502 |                 
|                                   |                                                                                                                                   |       |       |         |                        |         |                 



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



---

WILD OATS MARKETS, INC.

Consolidated
Statements of Cash Flows

(in thousands) (unaudited)

|                                                     |                                                                                       |                                                                       |                                                         |          | SIX MONTHS
    ENDED
|---------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------- | -------- | --------------------
|                                                     |                                                                                       |                                                                       |                                                         |          | June 26,            
|                                                     |                                                                                       |                                                                       |                                                         |          | 2004                
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|CASH FLOWS FROM OPERATING
    ACTIVITIES             |                                                                                       |                                                                       |                                                         |         
|                                                     | Net income                                                                            |                                                                       | $ 2,720                                                 |          | $ 3,623             
|                                                     | Adjustments to reconcile net
    income to net cash provided by operating activities: |                                                                       |                                                         |          |                     
|                                                     |                                                                                       | Depreciation and amortization                                         |                                                         | 12,570   |                     
|                                                     |                                                                                       | Loss (gain) on disposal of
    property and equipment                 |                                                         | (22)     |                     
|                                                     |                                                                                       | Deferred tax expense                                                  |                                                         | 1,581    |                     
|                                                     |                                                                                       | Non-cash restructuring and asset
    impairment charges (income), net |                                                         | 127      |                     
|                                                     |                                                                                       | Other                                                                 |                                                         | 240      |                     
|                                                     | Change in assets and liabilities:                                                     |                                                                       |                                                         |          |                     
|                                                     |                                                                                       | Inventories, net                                                      |                                                         | (4,568)  |                     
|                                                     |                                                                                       | Receivables, net, and other assets                                    |                                                         | 1,782    |                     
|                                                     |                                                                                       | Accounts payable                                                      |                                                         | 8,186    |                     
|                                                     |                                                                                       | Accrued liabilities                                                   |                                                         | 1,015    |                     
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|                                                     |                                                                                       |                                                                       | Net cash provided by operating
    activities           |          | 23,631              
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|CASH FLOWS FROM INVESTING
    ACTIVITIES             |                                                                                       |                                                                       |                                                         |         
|                                                     | Capital expenditures                                                                  |                                                                       | (29,498)                                                |          | (13,297)            
|                                                     | Proceeds from sale of property and
    equipment                                      |                                                                       | 964                                                     |          | 4                   
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|                                                     |                                                                                       |                                                                       | Net cash used in investing
    activities               |          | (28,534)            
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|CASH FLOWS FROM FINANCING
    ACTIVITIES             |                                                                                       |                                                                       |                                                         |         
|                                                     | Net repayments under
    line-of-credit agreement                                     |                                                                       | (30,179)                                                |          | (4,100)             
|                                                     | Net decrease in book overdraft                                                        |                                                                       | (5,492)                                                 |          | (1,988)             
|                                                     | Repayments on long-term debt and
    capital leases                                   |                                                                       | (37)                                                    |          | (37,098)            
|                                                     | Proceeds from long term debt                                                          |                                                                       | 115,150                                                 |          | 37,879              
|                                                     | Purchase of treasury stock                                                            |                                                                       | (24,999)                                                |          | -                   
|                                                     | Payment of debt issuance costs                                                        |                                                                       | (3,636)                                                 |          | (721)               
|                                                     | Proceeds from issuance of common
    stock, net                                       |                                                                       | 2,552                                                   |          | 1,343               
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|                                                     |                                                                                       |                                                                       | Net cash provided by (used in)
    financing activities |          | 53,359              
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|Effect of exchange rate changes on
    cash          |                                                                                       | (85)                                                                  |                                                         | 70      
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|Net increase in cash and cash
    equivalents        |                                                                                       | 48,371                                                                |                                                         | 3,908   
|Cash and cash equivalents at
    beginning of period |                                                                                       | 17,400                                                                |                                                         | 11,367  
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|Cash and cash equivalents at end
    of period       |                                                                                       | $ 65,771                                                              |                                                         | $ 15,275
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|                                                     |                                                                                       |                                                                       |                                                         |          |                     
|NON-CASH INVESTING AND
    FINANCING ACTIVITIES      |                                                                                       |                                                                       |                                                         |         
|                                                     | Equipment acquired through capital
    lease                                          |                                                                       | $ 105                                                   |          | -                   
|                                                     |                                                                                       |                                                                       |                                                         |          |                     

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



---

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 and
organic foods supermarkets in the United States and Canada. The Company also operates
bakeries, commissary kitchens and a distribution center 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 June 26, 2004, the consolidated
statements of income and comprehensive income for the three months and six months ended
June 26, 2004 and June 28, 2003, as well as the consolidated statements of cash flows for
the six months ended June 26, 2004 and June 28, 2003 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.

The financial statements have been prepared by the Company in accordance
with the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to SEC regulations,
therefore, these consolidated financial statements should be read in conjunction with
financial statements and notes thereto included in the Company's 2003 Annual Report on
Form 10-K. The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses
and related disclosures of contingent assets and liabilities. Examples include accounting
for self-insurance reserves, restructuring charges and store closing costs, asset
impairment charges, goodwill, inventory valuation, and contingencies. Actual results may
differ from these estimates. The results of operations for interim periods presented are
not necessarily indicative of the operating results for the full year.

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

The unaudited information included in the consolidated financial
statements for the three months and six months ended June 26, 2004 and June 28, 2003
include the results of operations of the Company for the 13 weeks and 26 weeks then ended.



|2. | Stock-Based Compensation
|-- | ------------------------

At June 26, 2004, the Company has seven stock-based employee
compensation plans, which are described more fully in Note 9  Stock Plans and
Options in our fiscal 2003 Annual Report filed on Form 10-K for the period ended
December 27, 2003. These plans allow for awards of both stock options and restricted stock
units ("RSUs"). The Company accounts for those plans in accordance with the
intrinsic value based method in APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Some stock-based compensation expense is
reflected in net income for options issued at a discount and for RSUs issued 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 stock-based compensation expense is reflected in net income for these
grants. Also reflected in results of operations for the first six months of fiscal 2004
and 2003 is compensation expense of $315,000 and $182,000, respectively, relating to the
extension of the option exercise period beyond Company-imposed blackout periods for
previously granted stock options held by retiring members of the Board of Directors.





As required by Financial Accounting Standards Board Statement Nos. 123, Accounting
for Stock-Based Compensation ("SFAS 123"),and 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS 148"), the
following table illustrates the effect on net income and earnings per share if stock-based
compensation costs were to be calculated based on the fair value of the options granted
and recognized ratably over the vesting period as prescribed in SFAS No. 123 (in
thousands):

|                        |                                                                                                                        |                             |       |          | THREE MONTHS
    ENDED |         | SIX MONTHS ENDED
|----------------------- | ---------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----- | -------- | ---------------------- | ------- | ----------------
|                        |                                                                                                                        |                             |       |          | June 26,               |         | June 28,        
|                        |                                                                                                                        |                             |       |          | 2004                   |         | 2003            
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|Net income, as reported |                                                                                                                        | $ 363                       |       | $ 2,183  |                        | $ 2,720 |                 
|                        | Add: Stock-based compensation
    expense included in reported net income, net of tax                                  |                             | 60    |          | 23                     |         | 287             
|                        | Deduct: Total stock-based
    compensation expense determined under fair value based method for all awards, net of tax |                             | (687) |          | (771)                  |         | (1,275)         
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        |                                                                                                                        | Pro forma net income (loss) |       | (264)    |                        | 1,435   |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        | Earnings (loss) per share:                                                                                             |                             |       |          |                        |         |                 
|                        |                                                                                                                        | Basic  as reported         |       | $ 0.01   |                        | $ 0.07  |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        |                                                                                                                        | Basic  pro forma           |       | $ (0.01) |                        | $ 0.05  |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        |                                                                                                                        | Diluted  as reported       |       | $ 0.01   |                        | $ 0.07  |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 
|                        |                                                                                                                        | Diluted - pro forma         |       | $ (0.01) |                        | $ 0.05  |                 
|                        |                                                                                                                        |                             |       |          |                        |         |                 



In March 2004, the Financial Accounting Standards Board
("FASB") issued a proposed Statement, Share-Based Payment, which would be
an amendment to SFAS 123. This proposed standard would require share-based payments to
employees, including grants of employee stock options, to be recognized in the income
statement based on their fair values, and would eliminate the Company's ability to
continue accounting for share-based compensation transactions using the intrinsic method
in APB Opinion No. 25. The FASB expects to issue a final standard late in 2004, which
would be effective for the Company's first quarter of fiscal year 2005 reporting period.
Wild Oats has not yet determined to what degree this proposed standard will impact its
future earnings and earnings per share.



|3. | 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 in fiscal 2003,
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.



|4. | Long Term Debt and Liquidity
|-- | ----------------------------

Contingent Convertible Senior Debentures. In June 2004, the
Company issued $115 million aggregate principal amount of its 3.25% Convertible Senior
Debentures due May 15, 2034 in a private placement. The debentures bear regular interest
at the annual rate of 3.25%, payable semiannually on May 15 and November 15 of each year
until May 15, 2011, after which date, no regular interest will be due. Commencing May 20,
2011 and ending November 14, 2011, and for any six-month period thereafter, contingent
interest will be due and payable in the amount of 0.25% of the average trading price of
the debentures during a specified period, if the average trading price of the debentures
equals or exceeds 125% of the principal amount of the debentures.

The debentures are convertible into the Companys common stock
prior to maturity at the option of the holders under the following circumstances:
(1) during any calendar quarter commencing after June 30, 2004 and before March 31,
2029, if the last reported sale price of our common stock is greater than or equal to 130%
of the conversion price of $17.70 per share; (2) at any time on or after April 1,
2029 if the last reported sale price of our common stock on any date on or after March 31,
2029 is greater than or equal to 130% of the conversion price; (3) subject to certain
limitations, during the five business-day period after any five consecutive trading-day
period in which the trading price per debenture for each day of that period was less than
98% of the product of the conversion rate and the last reported sale price of the
Companys common stock; (4) if the Company calls the debentures for redemption;
(5) upon the occurrence of certain corporate transactions; or (6) if the Company
obtains credit ratings for the debentures, at any time when the credit ratings assigned to
the debentures are below specified levels. The debentures are initially convertible into
56.5099 shares of the Companys common stock per $1,000 principal amount, which is
equivalent to $17.70 per share, for total initial underlying shares of 6,498,639. Upon
conversion, the Company has the right to deliver, in lieu of common stock, cash or any
combination of cash and common stock. Pursuant to the underwriting agreement and within 90
days of issuance, the Company intends to file a shelf registration statement covering
resales of the debentures and the common stock issuable upon conversion thereof.

On or after May 20, 2011, the Company may redeem for cash some or all of
the debentures at any time and from time to time, for a price equal to 100% of the
principal amount of the debentures plus accrued and unpaid contingent interest, if any.
Holders have the right to require the Company to repurchase any or all debentures for
cash, at a repurchase price equal to 100% of the principal amount of the debentures, plus
accrued and unpaid interest on: (1) May 15, 2011, May 15, 2014, and May 15, 2024; and (2)
the occurrence of change in control (as defined in the debenture).

The debentures are unsecured and unsubordinated obligations, and rank
equal in priority with all of its existing and future unsecured and unsubordinated
indebtedness and senior in right of payment to all of our subordinated indebtedness. The
debentures will effectively rank junior to any of our secured indebtedness and any of our
indebtedness that is guaranteed by our subsidiaries. Payment of principal and interest on
the debentures will be structurally subordinated to the liabilities of our subsidiaries.

Total proceeds from the issuance were $115.2 million. The Company used
$25.0 million of the net proceeds to repurchase 1,977,800 outstanding shares of its common
stock, $31.2 million to pay the outstanding balance on its credit facility, and
approximately $3.6 million to pay related debt issuance costs.

Credit Facility.The Companys credit facility has a $95.0
million limit, and 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 credit facility, the Company has given its lenders
collateral in the form of cash, equipment and fixtures, inventory and other assets. The
Company has also granted leasehold mortgages in those leasehold interests previously
mortgaged to secure our former credit facility, although we have no obligation to provide
a security interest in any new leaseholds. In connection with the private debt offering in
June 2004, the credit facility was amended in the second quarter which, among other
things, (1) increased the maximum allowable leverage ratio, (2) permitted the repurchase
of the Companys common stock, within specified limits, (3) increased the annual
limits on capital expenditures and new leases, (4) raised the limit on the value of
acquisitions and divestitures the Company can make without the consent of the lending
group, and (5) increased the maximum interest rate to either prime plus 1.0% or one month
LIBOR plus 2.5%. The credit agreement was subsequently amended in August 2004 to increase
the maximum allowable leverage ratio. The amendment requires that the Company maintain a
minimum cash balance, net of letters of credit and outstanding borrowings under the credit
facility, of $25 million through the end of the second quarter of fiscal 2005.

The interest rate on the facility is currently either prime plus 1.0% or
one-month LIBOR plus 2.5% 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 earnings before interest, taxes, depreciation, amortization and rent
("EBITDAR") for the four fiscal quarter periods then ended, as calculated on the
Companys quarterly compliance certificate. Additionally, the Company is 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. The outstanding balance on the
credit facility was repaid in June 2004 from the proceeds of the private debt issuance.
  There were no outstanding borrowings under the credit facility and three letters of
credit outstanding totaling $7.3 million as of June 26, 2004. The balance outstanding on
the credit facility as of June 28, 2003 was $39.9 million. As the Companys new store
growth accelerates, it expects its cash requirements for 2004 and 2005 will be primarily
satisfied from the proceeds of the private debenture issuance as well as cash generated
from operations.

The Company is currently, and expects to continue to be, in compliance
with the monthly and quarterly financial covenants in the credit agreement, as amended. 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 remains in compliance with its monetary covenants, 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 thereunder. 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.



|5. | 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 prior 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 was no obligation to renew
the swap under the current facility. No interest rate swap agreements are outstanding as
of June 26, 2004.



|6. | Earnings Per Share
|-- | ------------------

Earnings per share are calculated in accordance with the provisions of
SFAS No. 128, Earnings Per Share ("SFAS No. 128"). 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 351,081 and 1,212,503 for the three
months and 351,081 and 1,701,874 for the six months ended June 26, 2004 and June 28, 2008,
respectively, were not included in the earnings per share calculations. The contingently
convertible debt described in Note 4 - Long Term Debt and Liquidity has no impact
on diluted earnings per share until all conditions necessary for issuance have been
satisfied.

In July 2004, the Emerging Issue Task Force ("the Task Force")
of the Financial Accounting Standards Board reached a tentative conclusion on Issue No.
04-8, The Effect of Contingently Convertible Debt on Diluted Earnings per Share.
The Task Force tentatively concluded that contingently convertible debt should be included
in diluted earnings per share computations using the if-converted method regardless of
whether any of the conversion contingencies have been met, which would represent a
significant change in current accounting practice. Issue No. 04-8 will be discussed
further by the Task Force at its September 2004 meeting. If the Company had used the
if-converted method in calculating diluted earnings per share for the quarter and six
months ending June 26, 2004, the effect would have been anti-dilutive.

|7. | Goodwill and Finite Lived Intangible Assets
|-- | -------------------------------------------

During the second quarter of fiscal 2004, no goodwill was recognized as
a result of acquisitions, no goodwill was impaired, and no other changes in the carrying
amount of goodwill occurred.

Other intangible assets consist of the following (in thousands):

| |  |                               |  |         | June 26, |         | December 27,
| |  | ----------------------------- |  | ------- | -------- | ------- | ------------
| |  |                               |  |         | 2004     |         | 2003        
| |  |                               |  |         |          |         |             
| |  |                               |  |        
| |  | Leasehold interests           |  | $ 8,905 |          | $ 9,045
| |  | Less accumulated amortization |  | (2,359) |          | (2,240)
| |  |                               |  |         |          |         |             
| |  |                               |  | 6,546   |          | 6,805  
| |  | Liquor licenses               |  | 218     |          | 171    
| |  |                               |  |         |          |         |             
| |  |                               |  | $ 6,764 |          | $ 6,976
| |  |                               |  |         |          |         |             



Amortization expense related to finite lived intangible assets was
$122,000 and $121,000 for the three months and $251,000 and $243,000 for the six months
ended June 26, 2004 and June 28, 2003, respectively. The estimated amortization of finite
lived intangible assets for each of the five fiscal years ending in fiscal 2008 is as
follows (in thousands):

| | FISCAL
    YEAR |  | AMORTIZATION EXPENSE | 
| | --------------- |  | -------------------- | 
| |                 |  |                      | 
| |                 |  |                      | 
| | 2004            |  | $ 481                | 
| | 2005            |  | $ 491                | 
| | 2006            |  | $ 475                | 
| | 2007            |  | $ 471                | 
| | 2008            |  | $ 461                | 



|8. | Restructuring and Asset Impairment Charges
    (Income)
|-- | -------------------------------------------------------

During the second quarter of fiscal 2004, the Company recorded net
restructuring and asset impairment income of $99,000 consisting of the following
components:

| | Change in estimate related to
    lease-related liabilities for sites previously identified for closure or sale |                                                     | $ (922,000) | 
| | --------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------- | 
| |                                                                                                                 |                                                     |             | 
| | Lease-related liability for site
    closed during the quarter                                                  |                                                     | 40,000      | 
| |                                                                                                                 |                                                     |             | 
| | Severance for employees terminated
    during the second quarter of fiscal 2004                                 |                                                     | 63,000      | 
| |                                                                                                                 |                                                     |             | 
| | Accretion expense on lease related
    liabilities                                                              |                                                     | 203,000     | 
| |                                                                                                                 |                                                     |             | 
| | Asset impairment charges                                                                                        |                                                     | 517,000     | 
| |                                                                                                                 |                                                     |             | 
| |                                                                                                                 |                                                     |            
| |                                                                                                                 | Total restructuring and asset
    impairment income | $ (99,000)  | 
| |                                                                                                                 |                                                     |             | 



Details of the significant components are as follows:

- Changes in estimate related to lease-related liabilities for sites
    previously identified for closure or sale ($922,000 of restructuring income)  During
    the second quarter of fiscal 2004, the Company secured a viable subtenant for a vacant
    site in Missouri, resulting in a reversal of $1.5 million of the net restructuring charge
    previously recorded. Also, additional information received during the quarter relating to
    a previously subleased site in California indicates that the likelihood of receiving
    continued sublease income from the current subtenant is remote, resulting in an increase
    to the estimated reserve of $298,000. During the second quarter, the Company determined
    that additional time will be needed to dispose of certain lease obligations for three
    vacant sites. This determination was largely driven by results of current disposition
    efforts by the Company as well as continuing difficulties in finding subtenants that are
    deemed acceptable by the existing landlords. As a result, the Company increased its
    estimated reserves for these sites by $316,000. Based on these changes in facts and
    circumstances and the related changes in estimates, the Company adjusted or reversed the
    remaining lease-related liabilities previously recorded for these locations and recognized
    net restructuring income of $922,000 during the second quarter of fiscal 2004.

- Lease-related liability for site closed during the second quarter
    ($40,000 of restructuring expense) - During the second quarter of 2004, the Company closed
    a store in Oregon with a remaining lease obligation through October 2004. As a result, the
    Company recorded a restructuring charge of $40,000.

- Severance for employees notified of termination in the second quarter of
    fiscal 2004 ($63,000 of restructuring expense)  During the second quarter, 22
    employees were notified of their involuntary termination in conjunction with the closure
    of a store in Oregon, and as of June 26, 2004, all benefits had been paid to the
    employees.

- Accretion expense on lease-related liabilties ($203,000 of restructuring
    expense) - Accretion expense accrued during the quarter on reserves for lease-related
    liabilities that have been calculated using the net present value of the minimum lease
    payments (net of sublease income) resulted in additional restructuring expense of
    $203,000.

In addition to the net restructuring income described above, management
also identified during the second quarter of fiscal 2004 net asset impairment charges of
$517,000 in accordance with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets for one store held for use. Store assets
became impaired during the quarter because the projected cash flows of the store were not
sufficient to fully recover the carrying value of the stores long-lived assets and,
therefore, recorded an asset impairment charge of $591,000. The Company believes the weak
performance of the store was caused by increased competition. In determining whether an
impairment exists, the Company estimates the stores 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 continually reevaluates its stores performance to
monitor the carrying value of its long-lived assets in comparison to projected cash flows.
In addition, during the second quarter, the Company received insurance proceeds as
reimbursement for property losses and incremental expenses incurred during the first
quarter of 2003 caused by a roof collapse at a support facility in Federal Heights,
Colorado. The support facility had been previously identified for closure during the
fourth quarter of fiscal 2001, and the carrying value of its fixed assets were written off
as an impairment charge at that time. Therefore, the Company recorded a gain in the amount
of the insurance proceeds received for property losses of $74,000.

During the first quarter of fiscal 2004, the Company recorded
restructuring expense of $264,000 consisting of the following components:

| | Change in estimate related to
    lease-related liabilities for sites previously identified for closure or sale |  | $     236,000 | 
| | --------------------------------------------------------------------------------------------------------------- |  | ------------- | 
| |                                                                                                                 |  |               | 
| | Severance for employees notified
    of termination during the first quarter                                    |  | 28,000        | 
| |                                                                                                                 |  |               | 
| |                                                                                                                 |  |               | 
| | Total restructuring expense                                                                                     |  | $     264,000 | 
| |                                                                                                                 |  |               | 



Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites
    previously identified for closure or sale ($236,000 of restructuring expense) 
    During the first quarter, the Company determined that additional time will be needed to
    dispose of certain lease obligations for vacant sites in Pinecrest, Florida and Memphis,
    Tennessee, resulting in restructuring expense of $236,000.

- Severance for employees notified of termination during the first
    quarter ($28,000 of restructuring expense) -During the first quarter, 26 employees
    were terminated in conjunction with the closing of a store in West Palm Beach, Florida.
    The employees were notified of their involuntary termination during the first quarter of
    fiscal 2004, and as of June 26, 2004, all benefits had been paid to terminated employees.

The following table summarizes accruals related to the Companys
restructuring activities during the first six months of fiscal 2004 (in thousands):



|                  |  | 2000    |  |         |  |       |  |       |  |      |  |      |        
|----------------- |  | ------- |  | ------- |  | ----- |  | ----- |  | ---- |  | ---- | -------
|EXIT              |  | AND     |  | Q2      |  | Q4    |  | Q3    |  | Q1   |  | Q2   |        
|PLANS             |  | PRIOR   |  | 2001    |  | 2002  |  | 2003  |  | 2004 |  | 2004 | TOTAL  
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|Balance, 12/27/03 |  | $ 5,783 |  | $ 4,949 |  | $ 458 |  | $ 181 |  |      |  |      | $11,371
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|New accruals-     |  |         |  |         |  |       |  |       |  |      |  |      |        
|Severance         |  |         |  |         |  |       |  |       |  | $ 28 |  |      | 28     
|Lease-related     |  |         |  |         |  |       |  |       |  |      |  |      |        
|liabilities       |  | (16)    |  | 216     |  | 36    |  |       |  |      |  |      | 236    
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|Cash paid -       |  |         |  |         |  |       |  |       |  |      |  |      |        
|Severance         |  |         |  |         |  | (13)  |  | (26)  |  | (15) |  |      | (54)   
|Lease-related     |  |         |  |         |  |       |  |       |  |      |  |      |        
|liabilities       |  | (151)   |  | (95)    |  | (476) |  | (35)  |  |      |  |      | (757)  
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|Balance, 3/27/04  |  | $ 5,616 |  | $ 5,070 |  | $ 5   |  | $ 120 |  | $ 13 |  |      | $10,824
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|New accruals-     |  |         |  |         |  |       |  |       |  |      |  |      |        
|Severance         |  |         |  |         |  |       |  |       |  |      |  | $ 63 | 63     
|Lease-related     |  |         |  |         |  |       |  |       |  |      |  |      |        
|liabilities       |  | (1,424) |  | 336     |  | 298   |  | 70    |  |      |  | 41   | (679)  
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|Cash paid -       |  |         |  |         |  |       |  |       |  |      |  |      |        
|Severance         |  |         |  |         |  | (5)   |  | (14)  |  | (13) |  | (52) | (84)   
|Lease-related     |  |         |  |         |  |       |  |       |  |      |  |      |        
|liabilities       |  | (219)   |  | (230)   |  | (27)  |  | (35)  |  |      |  |      | (511)  
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|Balance, 6/26/04  |  | $3,9731 |  | $5,1761 |  | $2711 |  | $1411 |  | $0   |  | $521 | $9,613 
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        
|                  |  |         |  |         |  |       |  |       |  |      |  |      |        

1 The restructuring accrual balance of lease-related
liabilities.

As of June 26, 2004, the components of the accruals related to the
Companys restructuring activities are accrued liabilities of $2.3 million and other
long-term obligations of $7.3 million.



|9. | Income Taxes
|-- | ------------

For the six months ended June 26, 2004, the Company recorded $1.7
million of income tax expense, as a result of income before income taxes of $4.4 million
during the period. The Company has a $17.6 million net deferred tax asset, primarily as a
result of net operating loss carry-forwards, and temporary differences relating 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. The Company has established a valuation allowance for certain state net operating
loss carry-forwards which the Company believes will not result in a future realizable tax
benefit based upon projected taxable income in those states during the carry-forward
period. Although realization of the remaining net deferred tax asset is not assured, the
Company has concluded that a valuation allowance is not required, as it is more likely
than not that the Company will be able to realize a tax benefit through the generation of
future taxable income. The Company's assessment is based upon projections, which assume
the Company will at least maintain its current store contribution margin, and aggregate
sales growth experienced over the past five years, which would generate sufficient 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 financial projections are reasonable and, more likely than
not, attainable. The Company will continue to assess the recoverability of the remaining
net deferred tax asset, and to the extent it is determined in the future that an
additional valuation allowance is required, it will be recognized as a charge to earnings
at that time.



|10. | Change in Primary Distributor
|--- | -----------------------------

During the fourth quarter of 2003, the Company and Tree of Life, Inc.
("TOL") agreed to terminate their primary distribution relationship, and in
January 2004, the Company signed a five-year primary distribution agreement with United
National Foods, Inc; ("UNFI"). The transition to UNFI was fully completed in
March 2004. The agreement states that UNFI will pay the Company a conversion fee to cover
the costs of the transition to UNFI, which is payable over the period of the contract,
subject to the Company meeting certain minimum purchase requirements.



|11. | Subsequent Event
|--- | ----------------

In August 2004, the Company announced a restructuring plan that is
designed to streamline operations and achieve the benefits of centralized purchasing,
merchandising and pricing. In connection with this restructuring, 19 employees were
notified of their involuntary termination. The total cost of this restructuring plan is
expected to be approximately $500,000 incurred primarily during the third quarter of
fiscal 2004.



|12. | Related Party Transactions
|--- | --------------------------

The Company and Perry D. Odak, the Companys Chief Executive
Officer and President, and a director of the Board, entered into an employment agreement
in March 2001. As part of Mr. Odaks employment agreement, the Company agreed to
purchase his home in York, Pennsylvania if he was unable to sell it within a specific
period of time. In July 2001, the Company arranged for a relocation service to purchase
the home from Mr. Odak for $1.6 million. Despite substantial marketing efforts, the
relocation service was unable to sell the house for a reasonable price. In November 2002,
Mr. Odak offered to repurchase the house for the original $1.6 million he had received. At
December 28, 2002, Mr. Odak had remitted $1.35 million to the Company as partial
consideration to fund the purchase and the remaining consideration was funded by Mr.
Odaks fiscal 2002 bonus of $250,000 to which he was contractually entitled. On March
6, 2003, the Company remitted the $1.6 million to the relocation service.



|13. | 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 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 the fourth quarter of 2003, the
action was certified as a class action by the court. The Company filed an appeal and a
hearing has been set for September 2004. The Company intends to vigorously defend both
class certification and the suit itself. The Company is not able to estimate the potential
outcome of the suit at this time.

In April 2000, the Company was named as defendant in S/H 
Ahwatukee, LLC and YP - Ahwatukee LLC v. Wild Oats Markets, Inc., Superior Court of
Arizona, Maricopa County, by a landlord alleging Wild Oats breached a continuous
operations clause arising from the closure of a Phoenix, Arizona store. Plaintiff claimed
$1.5 million for diminution of value of the shopping center plus accelerated rent, fees
and $360,000 in attorneys fees and costs. After trial in November 2001, the judge
awarded the plaintiff an aggregate $536,000 in damages and attorneys fees. The
Companys appeal of judgment was denied in the first quarter of fiscal 2004, and the
Company filed a motion for reconsideration, which was denied. The Company has filed a
petition for review with the Arizona Supreme Court, a decision is pending. The Company has
recognized a charge to restructuring expense during the fourth quarter of 2003 in the
amount of $705,000, including estimated attorneys fees and estimated interest
accrued on the judgment.

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. The lawsuit was captioned Wild
Oats Markets, Inc. v. Michael C. Gilliland, Elizabeth C. Cook, Mark R. Clapp; Patrick
Gilliland, Westside Farmers Market LLC, Westside Liquors LLC and Milagro Cafe LLC.
A related suit was filed against Mr. Gilliland and his brother, Patrick Gilliland, for
misappropriation of trade secrets and insider trading related to Patrick Gillilands
postings on a financial chat board. The parties agreed to settle these two lawsuits in
July 2004. The settlement includes the disclosure to the Company of sources of certain
information obtained by defendants, a return of proprietary information to the Company,
mutual release of claims and the dismissal of the two suits.

The Company continues its review of past administrative practices of one
of our benefit plans, and while the review is nearing completion at the end of the second
fiscal quarter of 2004, the final results of the review should be completed in the third
quarter of fiscal 2004. At this time, the Company cannot reliably estimate whether such
review will disclose any corrections that will result in material liability to the
Company.

The Company also 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.  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, 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; changes in
product supply or suppliers; 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

Wild Oats Markets, Inc. is one of the largest natural foods supermarket
chains in North America. As of June 26, 2004, we operated 105 natural foods stores in 24
states and British Columbia, Canada primarily under four names:

- Wild Oats Natural Marketplace (nationwide)
- Henrys Farmers Market (Southern California and Phoenix, Arizona)
- Sun Harvest Farms (Texas)
- Capers Community Market (British Columbia, Canada)

We are differentiated from other grocers, both conventional and natural,
by our dedication to providing a broad selection of high-quality natural, organic and
gourmet foods, environmentally friendly household products and an extensive selection of
natural vitamins, supplements, herbal and homeopathic remedies and body care products at
competitive prices, in an inviting and educational store environment that emphasizes
customer service. Our comprehensive selection of natural and organic products appeals to
health-conscious shoppers while offering virtually every product category found in a
conventional supermarket. Our newest flagship store in Superior, Colorado, reflects the
Companys latest merchandising developments, including expanded produce, seafood,
cheese and charcuterie departments, a sit-down sushi bar, lower profile grocery shelving
with a central discovery center that displays the newest products and promotes product
demonstrations and an on-site nutritionist. The store also includes a newly redesigned
Holistic Health department offering a large assortment of natural vitamins, supplements
and body care products, lifestyle products, videos and DVDs, and a merchandising kiosk
featuring computer research stations and display screens.

While total sales increased during the quarter over the same period last
year, sales, gross margins and customer traffic were negatively impacted by intense
promotional activity in Southern California by conventional grocers following the end of a
four-month labor strike, increased promotional activities in other markets, as well as
competitive openings in certain markets. In order to drive increased sales and customer
traffic in our stores, we are developing new marketing initiatives, including marketing
outside of traditional venues, to increase consumers understanding of the quality of
our products and the value of natural and organic products. We continue to develop
brand-marketing programs by region, and on a national level. We also continue to expand
our private label line of products. We currently offer 750 different private label
products and continue to expand our offering of Wild Oats and Henrys branded
products to drive both sales and increased margins. As a result of relabeled and
reformulated products, our sales of private label products have increased on average 40%
year-over-year and currently represent approximately 10% of sales in the categories in
which such products are offered. We expect to continue to grow our private label sales to
approximately 20% of category sales by the end of 2005.

We remain focused on initiatives designed to deliver operational
efficiencies. We expanded service from our California perishables distribution center to
eleven other western states in mid-May, and have increased to 71 the number of stores
receiving product from this new distribution center as of the date of this report. In the
second quarter of fiscal 2004, we began testing our back-door receiving program, and
expect to receive the benefit of improved inventory management and margin control in our
natural foods supermarket format stores after the roll-out of this program at the end of
this year.

In August 2004, we announced a reorganization designed to provide
operational efficiencies focused on functional areas rather than brands, and to realize
the benefits of information technology investments in centralized purchasing,
merchandising and pricing. In conjunction with this reorganization, 19 employees were
notified of their involuntary termination including six senior management people. Included
in jobs eliminated in this reorganization was that of the Senior Vice President and
General Manager of Wild Oats stores. All store operations will, in the future, report to
Ed Dunlap, current Chief Financial Officer, who will relinquish the chief financial
position at such time as a replacement is identified. A search is currently on going. The
total cost of the reorganization is expected to be approximately $500,000, incurred
primarily in the third quarter. This cost will be more than offset by the savings in
payroll, travel and related costs. As a result of completing our move to a centralized
structure and prior information technology investments, we anticipate that we will realize
an approximate $5.0 million reduction in annual selling, general and administrative
expenses beginning in 2005.

Wild Oats is positioned for growth. In June 2004, we issued $115 million
principal amount in senior debentures, and intend to use a portion of the net proceeds to
accelerate our store growth plans, including opening up to 20 new stores in 2005 and up to
40 new stores in 2006. We also plan to execute initiatives designed to drive customer
traffic and sales of our private label products outside of our stores. We have reached
agreement to test two alternative retail concepts beginning in the fourth quarter of 2004.
The first is a three-to-five-store test of a Wild Oats branded store-within-a-store
concept with Stop & Shop, the largest food retailer in the Northeastern U.S.
Additionally, we will initiate an online retailing test of Wild Oats private label grocery
products in the Chicago area with Peapod, a leading U.S. Internet grocer.

We continue to execute our real estate strategy, and through the date of
this report, have signed leases or letters of intent for 27 proposed new sites opening in
fiscal 2004, 2005 and 2006. New stores expected to open in the remainder of fiscal 2004
include sites for each of Wild Oats and Henrys Farmers Market formats in areas where
we have an existing market presence. The successful completion of the $115 million
principal amount debentures offering, and the amendment to our existing credit facility
gives us greater flexibility to pursue our growth strategy and reduces the actual rate of
interest that we pay on our debt. See "Managements Discussion and Analysis
of Financial Conditions and Results of Operations  Liquidity and Capital
Resources"below for additional information about the debenture offering and
amendment to credit facility.

At June 26, 2004, we had 105 stores located in 24 states and Canada, as
compared to 100 stores in 25 states and Canada at the end of the second quarter of fiscal
2003.

| |                                    |  | TOTAL STORE
    COUNT  | 
| | ---------------------------------- |  | ---------------------- | 
| |                                    |  | Fiscal Year
    Ending | 
| |                                    |  |                        | 
| |                                    |  |                        | 
| |                                    |  | 2002                   | 
| |                                    |  |                        | 
| |                                    |  |                        | 
| | Store count at beginning of period |  | 107                    | 
| | Stores opened                      |  | 1                      | 
| | Stores closed                      |  | (5)                    | 
| | Stores sold                        |  | (4)                    | 
| |                                    |  |                        | 
| |                                    |  |                        | 
| | Store count at end of period       |  | 99                     | 
| |                                    |  |                        | 



In the second quarter of fiscal 2004, we opened five new stores and
closed one store in Oregon where the lease expires in October 2004. In fiscal 2004,
through the date of this report, we have opened six new stores in Mission Viejo,
California; Colorado Springs and Superior, Colorado; Omaha, Nebraska; metropolitan
Cincinnati, Ohio; and Salt Lake City, Utah. We closed one store in Phoenix, Arizona, in
the first quarter of fiscal 2004 and remodeled and re-opened the store as a Henrys
Farmers Market in June 2004. We currently have eight new store sites under construction
and scheduled for opening in the next six months in Phoenix, Arizona (three); Los Angeles,
California (two); Indianapolis, Indiana; Salt Lake City, Utah; and Vancouver, Washington.
In fiscal 2004, we have commenced remodeling and/or major resetting of 11 of our stores,
seven of which were completed in the second quarter of fiscal 2004.

As of the date of this report, we had an inventory of 11 vacant sites
comprising closed store, office and warehouse locations, and excess unoccupied space
acquired during acquisitions or other leasing transactions, for which we have rent
obligations. Required accruals have been made for such obligations. We are actively
seeking subtenants or assignees for the majority of the spaces, although many of the sites
are difficult to sublease or assign because of unusual site characteristics, surpluses of
vacant retail space in the markets in which the sites are located, or because the
remaining lease terms are relatively short.



Results of Operations

Our net income for the second quarter of fiscal 2004 was $363,000, or $
0.01 per diluted share, compared with a net income of $2.2 million, or $0.07 per diluted
share, in the same period in fiscal 2003. The following table sets forth, for the periods
indicated, certain selected income statement data expressed as a percentage of sales and
in dollars (in thousands - percentages may not add due to rounding):

| | FISCAL YEAR                                                     |  |           | THREE MONTHS
    ENDED
| | --------------------------------------------------------------- |  | --------- | ----------------------
| |                                                                 |  |           | June 26,              
| |                                                                 |  |           | 2004                  
| |                                                                 |  |           |                       
| | Sales                                                           |  | $ 251,697 |                       
| | Cost of goods sold and occupancy
    costs                      |  | 178,525   |                       
| |                                                                 |  |           |                       
| | Gross profit                                                    |  | 73,172    |                       
| | Direct store expenses                                           |  | 56,271    |                       
| | Selling, general and
    administrative expenses                |  | 14,418    |                       
| | Loss (gain) on disposal of assets                               |  | 48        |                       
| | Pre-opening expenses                                            |  | 1,626     |                       
| | Restructuring and asset impairment
    charges    (income), net |  | (99)      |                       
| |                                                                 |  |           |                       
| | Income from operations                                          |  | 908       |                       
| |                                                                 |  |           |                       
| | Interest income                                                 |  | 222       |                       
| | Interest expense                                                |  | (540)     |                       
| |                                                                 |  |           |                       
| | Income before income taxes                                      |  | 590       |                       
| | Income tax expense                                              |  | 227       |                       
| |                                                                 |  |           |                       
| | Net income                                                      |  | $ 363     |                       
| |                                                                 |  |           |                       



| | FISCAL YEAR                                                     |  |          | SIX MONTHS
    ENDED
| | --------------------------------------------------------------- |  | -------- | --------------------
| |                                                                 |  |          | June 26,            
| |                                                                 |  |          | 2004                
| |                                                                 |  |          |                     
| | Sales                                                           |  | $515,492 |                     
| | Cost of goods sold and occupancy
    costs                      |  | 365,206  |                     
| |                                                                 |  |          |                     
| | Gross profit                                                    |  | 150,286  |                     
| | Direct store expenses                                           |  | 113,314  |                     
| | Selling, general and
    administrative expenses                |  | 29,939   |                     
| | Loss (gain) on disposal of assets                               |  | (22)     |                     
| | Pre-opening expenses                                            |  | 2,101    |                     
| | Restructuring and asset impairment
    charges    (income), net |  | 165      |                     
| |                                                                 |  |          |                     
| | Income from operations                                          |  | 4,789    |                     
| |                                                                 |  |          |                     
| | Loss on early extinguishment of
    debt                        |  | -        |                     
| | Interest income                                                 |  | 408      |                     
| | Interest expense                                                |  | (807)    |                     
| |                                                                 |  |          |                     
| | Income before income taxes                                      |  | 4,390    |                     
| | Income tax expense                                              |  | 1,670    |                     
| |                                                                 |  |          |                     
| | Net income                                                      |  | $ 2,720  |                     
| |                                                                 |  |          |                     



Sales. Net sales for the three and six months ended June 26, 2004
increased 3.9% and 7.8%, respectively, as compared to the same periods in fiscal 2003. The
quarter and year-to-date increases were primarily driven by comparable store sales growth
of 1.5% and 4.9%, respectively, as well as the opening of five new retail stores during
the second quarter, and six new stores during the first six months of 2004. Comparable
store basket size grew 4.5% and 5.2% for the three and six months ended June 26, 2004 as
compared to the same period last year, while customer traffic for the same periods
declined by 3.0% and 0.3%, respectively. Basket size continues to increase nationwide,
largely due to sales growth in our perishable departments (particularly meat, seafood and
cheeses) as a result of improved product selection, as well as increased awareness of
food-safety concerns. Comparable store sales and customer traffic slowed during the second
quarter as compared to the same period last year due to a combination of several factors,
including aggressive promotional activity from conventional grocers in Southern California
attempting to regain business lost during the labor strike and an increase in competitive
store openings. Comparable store sales and customer traffic also were negatively impacted
by the cannibalization of sales of ten existing stores by new stores that opened in
existing markets during the last twelve months. Comparable store sales for fiscal 2004 are
expected to be in the range of 1.0% to 1.5%, with quarterly comparable store sales flat in
the third quarter and (5.0%) to (5.5%) in the fourth quarter of fiscal 2004, as we compare
to results during the fourth quarter 2003 grocery store strike in Southern California. We
deem sales of a new, relocated or acquired store comparable commencing in the thirteenth
full month of operations.

Gross Profit. Gross profit consists of sales less cost of goods
sold and store occupancy costs. As a percentage of sales, gross profit decreased to 29.1%
and 29.2% in the second quarter and first six months of fiscal 2004 from 29.4% and 29.7%
in the same periods in fiscal 2003, due primarily to accelerated depreciation related to
projected store and warehouse closures, costs to add additional stores to the service area
of our new Riverside, California distribution facility, promotional activity to combat
aggressive price competition from Southern California conventional grocers, and related
difficulties in balancing demand and shrink, lower margins historically associated with
the opening of five new stores opened in the fiscal quarter, and six new stores in the
first half of fiscal 2004, as compared to no store openings in the second quarter of
fiscal 2003 and three in the first half of 2003. We also experienced slight margin impacts
due to increased freight rates resulting from the impact of Department of Transportation
regulation changes at the end of the second quarter of fiscal 2004, and expect to see
additional impacts from freight rate charges, as well as fuel surcharges, in the remainder
of fiscal 2004.  Gross profit margins for the third quarter of fiscal 2004 are
expected to be below 29%, inclusive of approximately $1.4 million accelerated
depreciation. Gross profit margins for fiscal 2004 are expected to be approximately 30%,
driven in part by lower accelerated depreciation charges.

Direct Store Expenses. As a percentage of sales, direct store
expenses increased to 22.4% and 22.0% in the three and six months ended June 26, 2004,
from 20.8% and 21.2% in the same periods last year, as a result of higher benefit costs
and higher payroll costs associated with the opening of five new stores in the second
quarter of fiscal 2004 as compared to no store openings in the same period in 2003. Direct
store expenses will remain at the same level through the third quarter of  2004, as
we open up to eight additional stores in the next six months, and we expect health
insurance costs to remain higher through year-end.   Direct store expenses for fiscal
2004 are expected to decrease slightly to approximately 22%.

Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the three and six months ended June 26, 2004 and June 28,
2003 decreased 14.2% and 8.7% as compared to the same period in fiscal 2003. These
decreases relate primarily to better expense management including shifts in the type of
marketing strategies employed in 2004 as compared to 2003, which has resulted in lower
advertising costs. These cost reductions were partially offset by professional fees
incurred for compliance work required by Section 404 of the Sarbanes-Oxley Act
("SOX"), and an increase in board of directors compensation due to the
change in type of compensation provided to directors from stock options to restricted
stock units during the second quarter, as well as the extension of certain directors
stock options (see "Notes to Consolidated Financial Statements  Note 2-
Stock-Based Compensation."). Also, included in the second quarter selling,
general and administrative expenses are costs of an ongoing administrative practices
review of one of our benefit plans and the costs necessary to ensure our compliance with
SOX prior to its effective date.We expectthat the benefit plan audit will
be substantially completed in the third quarter of fiscal 2004, and that SOX compliance
costs will continue throughout the year. As a percentage of sales, selling, general and
administrative expenses decreased to 5.7% in the second quarter of fiscal 2004 from 6.9%
in the same period in fiscal 2003. The decrease is attributable to the reasons discussed
above as well as the leveraging of existing support costs against higher sales in 2004. We
expect to incur more advertising expense as we increase our promotional activities in the
last two quarters, as compared to the first two quarters of fiscal 2004. We expect
selling, general and administrative expenses to decrease approximately $1 million in the
fourth quarter of fiscal 2004. We anticipate that we will realize an approximate $5.0
million reduction in annual selling, general and administrative expenses beginning in 2005
as a result of the completion of our reorganization to a centralized structure and prior
information technology investments.

Loss (Gain) on Disposal of Assets. We recorded a $22,000 net gain
on disposal of assets for the six months ended June 26, 2004 compared to a $1.4 million
loss in the same period in fiscal 2003, due primarily to a $1.5 million loss on disposal
of fixtures and equipment that were no longer needed in our stores.

Pre-Opening Expenses. Pre-opening expenses include labor, rent,
advertising, utilities, supplies and certain other costs incurred prior to a stores
opening. Pre-opening expenses for the second quarter of fiscal 2004 increased to $1.6
million compared to $101,000 during the same period in fiscal 2003 due to the opening of
five new stores in the second quarter of fiscal 2004, compared to none during the same
period last year. The increase in pre-opening expenses for the six months ended June 26,
2004 over the same period last year was due to the opening of six stores in the first six
months of fiscal 2004, as compared to three in the same period in 2003. Pre-opening
expenses should increase in the aggregate in the third and fourth quarters as we prepare
for eight new store openings in the next six months.

Restructuring and Asset Impairment Expense (Income). During the
second quarter of fiscal 2004, we recorded net restructuring and asset impairment income
of $99,000. Details of the significant components are as follows:

- Changes in estimate related to lease-related liabilities for sites
    previously identified for closure or sale ($922,000 of restructuring income) 
    During the second quarter of fiscal 2004, we secured a viable subtenant for a vacant site
    in Missouri, resulting in a reversal of $1.5 million of the net restructuring charge
    previously recorded. Also, additional information received during the quarter relating to
    a previously subleased site in California indicates that the likelihood of receiving
    continued sublease income from the current subtenant is remote, resulting in an increase
    to the estimated reserve of $298,000. During the second quarter, we determined that
    additional time will be needed to dispose of certain lease obligations for three vacant
    sites. This determination was largely driven by results of our current disposition efforts
    as well as continuing difficulties in finding subtenants that are deemed acceptable by the
    existing landlords. As a result, we increased our estimated reserves for these sites by
    $316,000. Based on these changes in facts and circumstances and the related changes in
    estimates, we adjusted or reversed the remaining lease-related liabilities previously
    recorded for these locations and recognized net restructuring income of $922,000 during
    the second quarter of fiscal 2004.

- Lease-related liability for site closed during the second quarter
    ($40,000 of restructuring expense) - During the second quarter of 2004, we closed a
    store in Oregon with a remaining lease obligation through October 2004. As a result, we
    recorded a restructuring charge of $40,000.

- Severance for employees notified of termination in the second quarter
    of fiscal 2004 ($63,000 of restructuring expense)  During the second quarter, 22
    employees were notified of their involuntary termination in conjunction with the closure
    of a store in Oregon, and as of June 26, 2004, all benefits had been paid to the
    employees.

- Accretion expense on lease-related liabilties ($203,000 of
    restructuring expense) - Accretion expense accrued during the quarter on reserves for
    lease-related liabilities that have been calculated using the net present value of the
    minimum lease payments (net of sublease income) resulted in additional restructuring
    expense of $203,000.

In addition to the net restructuring income described above, management
also identified during the second quarter of fiscal 2004 net asset impairment charges of
$517,000 in accordance with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets for one store held for use. Store assets
became impaired during the quarter because the projected cash flows of the store were not
sufficient to fully recover the carrying value of the stores long-lived assets, and,
therefore, recorded an asset impairment charge of $591,000. In determining whether an
impairment exists, the Company estimates the stores 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 of the store was caused by increased
competition. We continually reevaluate our stores performance to monitor the
carrying value of its long-lived assets in comparison to projected cash flows. In
addition, during the second quarter, we received insurance proceeds as reimbursement for
property losses and incremental expenses incurred during the first quarter of 2003 caused
by a roof collapse at a support facility in Federal Heights, Colorado. The support
facility had been previously identified for closure during the fourth quarter of fiscal
2001, and the carrying value of its fixed assets were written off as an impairment charge
at that time. Therefore, we recorded a gain in the amount of the insurance proceeds
received for property losses of $74,000.

During the first quarter of fiscal 2004, we recorded restructuring
expense of $264,000. Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites
    previously identified for closure or sale ($236,000 of restructuring expense) 
    During the first quarter, we determined that additional time will be needed to dispose of
    certain lease obligations for vacant sites in Pinecrest, Florida and Memphis, Tennessee,
    resulting in restructuring expense of $236,000.

- Severance for employees notified of termination during the first
    quarter ($28,000 of restructuring expense) -During the first quarter, 26 employees
    were terminated in conjunction with the closing of a store in West Palm Beach, Florida.
    The employees were notified of their involuntary termination during the first quarter of
    fiscal 2004, and as of June 26, 2004, all benefits had been paid to terminated employees.

Loss on Early Extinguishment of Debt. Loss on early
extinguishment of debt for the six months ended June 28, 2003 was $186,000 due to the
refinancing of the credit facility, which required the write off of the unamortized debt
costs associated with the old facility.

Interest Income. Interest income for the three and six months
ended June 26, 2004 and June 28, 2003 remained relatively constant at 0.1% of sales. We
expect interest income to increase significantly as proceeds from the debentures are
invested.

Interest Expense. Interest expense for the three months ended
June 26, 2004 decreased 35.8% to $540,000 from $842,000 in the same period in fiscal 2003,
due to an overall decrease in borrowings under our credit facility as well as the
expiration of the interest rate swap in August 2003, which increased second quarter 2003
interest expense by $409,000. Interest expense for the six-month period ended June 26,
2004 decreased 56% to $807,000 from $1.8 million for the same period in fiscal 2003, for
the reasons discussed above.  Interest expense for fiscal 2004 is expected to be
approximately the same as in fiscal 2003.

Income Tax Expense.For the three months ended June 26, 2004, we
recorded $227,000 of income tax expense, as a result of income before income taxes of
$590,000 during the period. Income tax expense for the six months ended June 26, 2004 is
$1.7 million as a result of income before taxes of $4.4 million during the same period. We
expect the effective tax rate on income from continuing operations will be in the range of
38.0% to 38.5% for fiscal 2004. See "Managements Discussion and Analysis of
Financial Conditions and Results of Operations  Liquidity and Capital
Resources"below.

Critical Accounting Policies and Estimates. Our discussion and
analysis of our 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 are believed 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 not readily apparent from other sources. Actual results may
differ from these estimates.

On an ongoing basis, we evaluate the continued appropriateness of our
accounting policies and resulting estimates, including those related to:

- Goodwill valuation
- Asset impairment charges
- Restructuring charges and store closing costs
- Inventory valuation and reserves
- Self-insurance reserves
- Reserves for contingencies and litigation

We believe the following critical accounting policies affect our most
significant judgments and estimates used in the preparation of our consolidated financial
statements. There have been no changes during the second quarter of 2004 in the selection
or application of these policies.

Goodwill. Goodwill consists of the excess cost of acquired
companies over the sum of the fair market value of their underlying tangible and
identifiable intangible assets acquired and liabilities assumed. Prior to 2002, goodwill
was recorded at the store-level, and amortized over 40 years. With adoption of Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets", we record goodwill at the enterprise level. It is no longer amortized but is
tested for impairment annually, or more frequently if certain indicators of impairment
exist. Our annual evaluation for impairment requires management to exercise a high degree
of judgment in developing assumptions and fair value estimates used in the calculation,
which have the potential of significantly impacting the results.

Impairment of Long-Lived Assets.We monitor the carrying value of
our long-lived assets, including finite-lived intangible assets, for potential impairment
whenever changes in circumstances indicate a potential for impairment may exist. The
triggering events for evaluations of finite lived intangible assets include a significant
decrease in the market value of an asset, acquisition and construction costs in excess of
budget, or current store operating losses combined with a history of losses or a
projection of continuing losses. If an impairment is identified, based on undiscounted
future cash flows, management compares the assets future cash flows, discounted to
present value using a risk-adjusted discount rate, to its current carrying value and
records a provision for impairment as appropriate. With respect to equipment and leasehold
improvements associated with closed stores, the value of these assets is adjusted to
reflect recoverable values estimated based on our previous efforts to dispose of similar
assets, with consideration for current economic conditions.

Restructuring and Asset Impairment Costs.We plan to complete
store closures or sales within a one-year period following the commitment date. Costs
related to store closures and sales are reflected in the income statement as
"Restructuring and Asset Impairment Charges." For stores we intend to sell, we
actively market the stores to potential buyers. Stores held for disposal are reduced to
their estimated net realizable value. Prior to 2003, when we committed to close a store, a
lease-related liability was recorded for the present value of the estimated remaining
non-cancelable lease payments after the anticipated closing date, net of estimated
subtenant income, or for estimated lease settlement costs. In addition, we recorded a
liability for costs to be incurred after the store closing which are required under leases
or local ordinances for site preservation during the period before lease termination. The
value of equipment and leasehold improvements related to a closed store was reduced to
reflect recoverable values based on our previous efforts to dispose of similar assets and
current economic conditions. In accordance with the new requirements of SFAS No. 146 (See "Notes
to Consolidated Financial Statements  Note 1  Organization and Summary of
Significant Accounting Policies -New Accounting Pronouncements" inour
fiscal 2003 Annual Report on Form 10-K for a discussion of SFAS No. 146), as of fiscal
2003, we recognized such lease related costs at the time of the actual store closing. As
of the date of the commitment to close or relocate a store, depreciation of store assets
is accelerated over the remaining months of operation as necessary in order to bring their
net carrying cost down to net realizable value as of the date of closure.

Severance costs incurred in connection with store closings are recorded
when the employees have been identified and notified of the termination benefits to be
made to the employees.

Lease-related liabilities and the recoverability of assets to be
disposed of are reviewed quarterly, and changes in previous estimates are reflected in
operations. Significant cash payments associated with closed stores relate to ongoing
payments of rent, common area maintenance, insurance charges, and real property taxes as
required under continuing lease obligations.

Inventories.Store inventories are valued principally at the
lower of cost or market, with cost primarily determined under the retail method on a
First-in, First-out ("FIFO") basis. FIFO cost is determined using the retail
method for approximately 80% of inventories and using the item cost method for highly
perishable products representing approximately 20% of inventories. 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 categories 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.

We maintain allowances for excess or unsaleable inventory as a
percentage of our gross inventory balance based on historical experience and assumptions
about market conditions. We have continued to improve inventory turns during the second
quarter of 2004, which has mitigated the risk of unsaleable inventory, however, if actual
market conditions are less favorable than those projected by management, or if we expand
our forward buying of inventory, which will increase our inventory levels, then additional
inventory write-downs may be required.

Self-Insurance. We are self-insured for certain losses relating
to workers compensation claims, general liability and employee medical and dental
benefits. We have purchased stop-loss coverage in order to limit its exposure to any
significant levels of claims. Self-insured losses are accrued based upon our estimates of
the aggregate uninsured claims incurred using certain actuarial assumptions followed in
the insurance industry and our historical experiences. A high degree of management
judgment is required in developing these estimates and assumptions, which have the
potential for significantly impacting the required reserve amounts.

Contingencies and Litigation.We maintain reserves for
contingencies and litigation based on managements best estimates of potential
liability in the event of a judgment against us, possible settlement costs, as well as
existing facts and circumstances. Future adverse changes related to current contingencies
and litigation could necessitate additional reserves in the future.



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. In
addition to these, we have also raised an additional $112.3 million, net of sales
commissions, in capital through the issuance of contingent convertible senior debentures
in a private placement in June 2004, as discussed below. 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 increased to $23.6 million
during the first six months of fiscal 2004, as compared to $21.8 million during the same
period in fiscal 2003. This increase is due to higher net earnings after adding back
non-cash items as well as improvement in net working capital management in 2004.

Net cash used in investing activities of $28.5 million during the first
six months of fiscal 2004 was greater than the $13.3 million reported during the same
period in fiscal 2003, due to the increase in store construction in 2004.

Net cash provided by financing activities was $53.4 million during the
first six months of fiscal 2004 as compared to a $4.7 million use of cash during the same
period in fiscal 2003. The increase in cash flows from financing activities is the direct
result of a $115 million private debenture offering completed in June 2004 as discussed
below.

For the six months ended June 26, 2004, we recorded $1.7 million of
income tax expense, as a result of income before income taxes of $4.4 million during the
period. We have a $17.6 million net deferred tax asset, primarily as a result of net
operating loss carry-forwards and temporary differences relating to restructuring and
asset impairment charges. The recoverability of the remaining net deferred tax asset is
primarily dependent upon our generation of sufficient taxable income in the future. We
have established a valuation allowance for certain state net operating loss
carry-forwards, which we believe will not result in a future realizable tax benefit based
upon projected taxable income in those states during the carry forward period. Although
realization of the remaining net deferred tax asset is not assured, we have concluded that
a valuation allowance is not required, as it is more likely than not that we will be able
to realize a tax benefit through the generation of future taxable income. Our assessment
is based upon projections that assume we will at least maintain its current store
contribution margin, and aggregate sales growth experienced over the past five years,
which would generate sufficient 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 its financial projections are
reasonable and, more likely than not, attainable. We will continue to assess the
recoverability of the remaining net deferred tax asset, and to the extent it is determined
in the future that an additional valuation allowance is required, it will be recognized as
a charge to earnings at that time.

Contingent Convertible Senior Debentures. In June 2004, we issued
$115 million aggregate principal amount of 3.25% Convertible Senior Debentures due May 15,
2034 in a private placement. Of the $115.2 million in total proceeds, we used $25.0
million to repurchase 1,977,800 shares of our common stock, $31.2 million to repay the
outstanding balance on our credit facility, and approximately $3.6 million to pay related
debt issuance costs. We intend to use the remaining proceeds to accelerate our store
growth plans and for general corporate purposes.

The debentures bear interest at the annual rate of 3.25%, payable
semiannually on May 15 and November 15 of each year until May 15, 2011, after which date
no regular interest will be due. During the period commencing May 20, 2011 and ending
November 14, 2011, if the average trading price of the debentures for the last five
trading-days immediately preceding May 20, 2011, equals 125% or more or the principal
amount of the debenture, and thereafter for a six-month period if the average trading
price during the five trading-days prior to the period equals or exceeds 125%, we will pay
contingent interest of 0.25% of the average trading price of the debentures during the
five-day trading period.

The debentures are convertible into our common stock prior to maturity
at the option of the holders under the following circumstances: (1) during any calendar
quarter commencing after June 30, 2004 and before March 31, 2029, if the last reported
sale price of our common stock is greater than or equal to 130% of the conversion price of
$17.70 per share; (2) at any time on or after April 1, 2029 if the last reported sale
price of our common stock on any date on or after March 31, 2029 is greater than or equal
to 130% of the conversion price; (3) subject to certain limitations, during the
five-business day period after any five consecutive trading-day period in which the
trading price per debenture for each day of that period was less than 98% of the product
of the conversion rate and the last reported sale price of our common stock; (4) if we
call the debentures for redemption; (5) upon the occurrence of certain corporate
transactions; or (6) if we obtain credit ratings for the debentures, at any time when the
credit ratings assigned to the debentures are below specified levels. The debentures are
initially convertible into 56.5099 shares of our common stock per $1,000 principal amount,
which is equivalent to $17.70 per share, for a total initial conversion into 6,498,639
shares. Upon conversion, we have the right to deliver, in lieu of common stock, cash or
any combination of cash and common stock. Pursuant to the underwriting agreement and
within 90 days of issuance, we intend to file a shelf registration statement covering
resales of the debentures and the common stock issuable upon conversion thereof.

On or after May 20, 2011, we may redeem for cash some or all of the
debentures at any time and from time to time, for a price equal to 100% of the principal
amount of the debentures plus accrued and unpaid contingent interest, if any. Holders have
the right to require the Company to repurchase any or all debentures for cash, at a
repurchase price equal to 100% of the principal amount of the debentures, plus accrued and
unpaid interest on: (1) May 15, 2011, May 15, 2014, and May 15, 2024; and (2) the
occurrence of change in control (as defined in the debenture).

The debentures are unsecured and unsubordinated obligations, and rank
equal in priority with all of our existing and future unsecured and unsubordinated
indebtedness and senior in right of payment to all of our subordinated indebtedness.

The debentures will effectively rank junior to any of our secured
indebtedness and any of our indebtedness that is guaranteed by our subsidiaries. Payment
of principal and interest on the debentures will be structurally subordinated to the
liabilities of our subsidiaries.

Credit Facility.Our credit facility has a $95 million limit and
has a three-year term 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.

As part of the credit facility, we have given our lenders collateral in
the form of cash, equipment and fixtures, inventory and other assets. We have also granted
leasehold mortgages in those leasehold interests previously mortgaged to secure our former
credit facility, although we have no obligation to provide a security interest in any new
leaseholds. In connection with the private debt offering in June 2004, the credit facility
was amended in the second quarter to, among other things, (1) increase the maximum
allowable leverage ratio, (2) permit the repurchase of the Companys common stock,
within specified limits, (3) increase the annual limits on capital expenditures and new
leases, (4) raise the limit on the value of acquisitions and divestitures the Company can
make without the consent of the lending group, and (5) increase the maximum percentage
rate to either prime plus 0.1% or one month LIBOR plus 2.5%. The credit agreement was
subsequently amended in August 2004 to further increase the maximum allowable leverage
ratio. The amendment requires that the Company maintain a minimum cash balance, net of
letters of credit and outstanding borrowings under the credit facility, of $25 million
through the end of the second quarter of fiscal 2005.

The interest rate on the facility is currently either prime plus 1.0% or
one-month LIBOR plus 2.5% 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. The outstanding balance on the credit facility was repaid
in June 2004 from the proceeds of the private debenture issuance.  There were no
outstanding borrowings under the credit facility and three letters of credit outstanding
totaling $7.3 million as of June 26, 2004. The balance outstanding on the credit facility
as of June 28, 2003 was $39.9 million. As our new store growth accelerates, we expect that
our cash requirements for 2004 and 2005 will be primarily satisfied from the proceeds of
the private debenture issuance as well as cash generated from operations.

Capital Expenditures. We spent approximately $15.8 million during
the second quarter and $29.5 million during the first six months of fiscal 2004 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 $2.1 million
to $3.9 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
farmers market format store are estimated at $1.6 million to $3.0 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.



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 2004, our expectations for comparable store sales; 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, the timing and execution of new store openings,
relocations, remodels, sales and closures; the impact of competition; changes in product
supply or suppliers and supplier performance levels; 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.

As previously noted, outstanding borrowings on the credit facility were
paid with the proceeds of the debenture issuance in June 2004. However, should we begin
drawing on the credit facility for additional capital, our exposure to interest rate
changes would be primarily related to our variable rate debt issued under our credit
facility. The total commitment available is $95.0 million under a revolving line of
credit, with a three-year term expiring February 25, 2006. The interest rate on the credit
facility is currently either prime plus 1.0% or one-month LIBOR plus 2.5%, 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 would be affected by interest rate
fluctuations.

In September 2000, as required by our former credit facility, we 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 June 28, 2003, the notional
principal amount of the interest rate swap agreement was $30.0 million, and expired in
August 2003. 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.



Item 4. Controls and
Procedures

Evaluation of Disclosure 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 the Exchange Act Rule 13a-14 under supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, as of the
end of the period covered by this report. 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.

Changes in Internal Control Over Financial Reporting. During the
fiscal quarter ended June 26, 2004, there have been no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





Part
II.  OTHER INFORMATION



Item
1.  Legal Proceedings

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. The lawsuit was captioned Wild
Oats Markets, Inc. v. Michael C. Gilliland, Elizabeth C. Cook, Mark R. Clapp; Patrick
Gilliland, Westside Farmers Market LLC, Westside Liquors LLC and Milagro Cafe LLC.
A related suit was filed against Mr. Gilliland and his brother, Patrick Gilliland, for
misappropriation of trade secrets and insider trading related to Patrick Gillilands
postings on a financial chat. The parties agreed to settle these two lawsuits in July
2004. The settlement includes the disclosure to the Company of sources of certain
information obtained by defendants, a return of proprietary information to the Company,
mutual release of claims and the dismissal of the two suits.

The Company also 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, Use of Proceeds and Issuer Purchase
of Equity Securities.

The Company completed its private offering of $115.0 million in
principal amount of 3.25% Convertible Senior Debentures due May 15, 2034 in a private
placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended. Total proceeds from the issuance were $115.2 million. The Company
used the proceeds as follows: (1) $25.0 million - purchase of 1,977,800 outstanding shares
of its common stock, at market value, (2) $31.2 million  repayment of outstanding
balance of the credit facility, (3) $2,875,000 - underwriters commission and (4)
$706,000 - legal fees and auditor costs. The Company intends to use the remaining net
proceeds to accelerate store growth plans and execute initiatives designed to drive sales
and customer traffic. The underwriters to whom the convertible debentures were sold are
J.P. Morgan Securities Inc. and Banc of America Securities LLC, as joint book-running
managers, and Wells Fargo Securities LLC (together, the "Underwriters"). The
debentures will be convertible into the Companys common stock, at the option of the
holders, at an initial rate equivalent to a conversion price of $17.70 per share. The
debentures may be redeemed by the Company beginning on May 20, 2011. Under a registration
rights agreement with the Underwriters, the Company has agreed for the benefit of the
holders of the debentures and the common stock issuable upon conversion of the debentures
that the Company will, at Company cost, no later than the 90th day after the
original date of issuance of the debentures, file a shelf registration statement covering
resales of the debentures and the common stock issuable upon conversion thereof pursuant
to Rule 415 of the Securities Act of 1933, as amended.

The following table contains certain information concerning the
Companys purchase of certain outstanding shares of its common stock on June 1, 2004:

> Issuer Purchases Of Equity Securities

|              |  | (a)                              |  | (b)                          |  | (c)                                                                                  |  | (d)                                                                                                             
|------------- |  | -------------------------------- |  | ---------------------------- |  | ------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------
|Period        |  | Total Number of Shares Purchased |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of
    Publicly Announced Plans or Programs |  | Maximum Number (or Approximate Dollar
    Value) of Shares that May Yet be Purchased Under the Plans or Programs
|June 1, 20041 |  | 1,977,8002                       |  | $12.64                       |  | 1,977,8003                                                                           |  | 0                                                                                                               

1 The private offering concluded June 2, 2004.

2Purchase of Company common stock during private offering of
$115 million in principal amount of 3.25% Convertible Senior Debentures due May 15, 2034.

3Report dated May 25, 2004 on Form 8-K, reported under Item
5, "Other Events and Regulation FD Disclosure" announcing the Companys
intent to sell convertible senior debentures.



Item
3.  Defaults Upon Senior Securities

None.



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

At the Companys Annual Meeting of Stockholders held on May 6,
2004, the Companys stockholders elected each of the following directors to the
Companys Board of Directors for a three-year term:Brian Devine, Stacey Bell
and John Shields. The following number of votes were cast for and against the election of
the directors:

Director
    For
    WithheldBrian Devine
    27,010,242
    922,331Stacey Bell
    27,023,259
    909,314John Shields
    25,563,324
    2,369,349


The remaining directors whose terms continue after the meeting date are
Ann-Marie Austin-Stephens, David Chamberlain, David Gallitano, Perry Odak and Mark
Retzloff.

The Companys stockholders ratified the selection of Ernst &
Young, LLP as independent accountants for the Company for its fiscal year ended January 1,
2005. The shareholders voted for the ratification by the following number of votes:

For
    Against
    Abstain
    Broker Non-Votes27,727,905
    181,700
    22,968
    0




Item 5. Other Information

None.

Item
6.  Exhibits and Reports on Form 8-K

|                                                                                                                         | (a) | Exhibits:           
|------------------------------------------------------------------------------------------------------------------------ | --- | --------------------
|                                                                                                                         |     | Exhibit 10.1**      
|                                                                                                                         |     | Exhibit 10.2**      
|                                                                                                                         |     | Exhibit 10.3+       
|                                                                                                                         |     | Exhibit 31.1+       
|                                                                                                                         |     | Exhibit 31.2+       
|                                                                                                                         |     | Exhibit 32.1+       
|                                                                                                                         |     | Exhibit 32.2+       
|                                                                                                                         |     |                     
|                                                                                                                         | (b) | Reports on Form 8-K:
|                                                                                                                         |     | (1)                 
|                                                                                                                         |     | (2)                 
|                                                                                                                         |     | (3)                 
|                                                                                                                         |     | (4)                 
|** Previously filed.                                                                                                    
|+ Included herewith.                                                                                                    
|(1) Incorporated by reference from the Registrants report
        dated May 25, 2004 on Form 8-K.   (File No. 0-21577).

SIGNATURES

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 5th day of August 2004.



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



|
|