TABLE OF CONTENTS

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 28, 2003            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                  
|    | OR                                                                                                                                                               
|    |                                                                                                                                                                  
|( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM 
    __________ TO __________



Commission file number 0-21577





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




3375 Mitchell Lane
Boulder, Colorado 80301(Address of principal executive offices, including zip code)



(303) 440-5220(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
days:
  Yes       ( X )       No      (
   )



Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2):
  Yes       ( X )       No      (
   )

As of August 1, 2003, there were 29,882,306 shares outstanding of the Registrant's
Common Stock (par value $.001 per share).

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TABLE OF CONTENTS

|PART I.                |  | FINANCIAL
    INFORMATION                                                                                                           |   
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- | --
|                       |  |                                                                                                                                     |   
|Item 1.                |  | Financial Statements:                                                                                                               |   
|                       |  |                                                                                                                                     |   
|                       |  | Consolidated Balance Sheets, June
      28, 2003 (unaudited) and December 28, 2003                                                  | 3 
|                       |  |                                                                                                                                     |   
|                       |  | Consolidated Statements
      of Operations (unaudited), Three and Six Months Ended June 28, 2003 and June 29, 2002                 | 4 
|                       |  |                                                                                                                                     |   
|                       |  | Consolidated
      Statements of Comprehensive Income (unaudited), Three and Six Months Ended June 28, 2003
      and June 29, 2002 | 5 
|                       |  |                                                                                                                                     |   
|                       |  | Consolidated Statements
      of Cash Flows (unaudited), Six Months Ended June 28, 2003 and June 29, 2002                           | 6 
|                       |  |                                                                                                                                     |   
|                       |  | Notes to
      Consolidated Financial Statements (unaudited)                                                                        | 7 
|                       |  |                                                                                                                                     |   
|Item
    2.            |  | Managements Discussion and Analysis of Financial Condition and Results of
      Operations                                         | 15
|                       |  |                                                                                                                                     |   
|Item
    3.            |  | Quantitative
      and Qualitative Disclosures About Market Risk                                                                    | 23
|                       |  |                                                                                                                                     |   
|Item 4.                |  | Controls and Procedures                                                                                                             | 23
|                       |  |                                                                                                                                     |   
|                       |  |                                                                                                                                     |   
|PART II.               |  | OTHER
      INFORMATION                                                                                                             |   
|                       |  |                                                                                                                                     |   
|Item 1.                |  | Legal Proceedings                                                                                                                   | 24
|                       |  |                                                                                                                                     |   
|Item 2.                |  | Changes
      in Securities                                                                                                         | 24
|                       |  |                                                                                                                                     |   
|Item 3.                |  | Defaults
      Upon Senior Securities                                                                                               | 24
|                       |  |                                                                                                                                     |   
|Item 4.                |  | Submission
      of Matters to a Vote of Security Holders                                                                           | 24
|                       |  |                                                                                                                                     |   
|Item 5.                |  | Other Information                                                                                                                   | 24
|                       |  |                                                                                                                                     |   
|Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                    | 25
|                       |  |                                                                                                                                     |   
|                       |  |                                                                                                                                     |   
|SIGNATURE AND EXHIBITS | 
|                       |  |                                                                                                                                     |   
|                       |  | Signature                                                                                                                           | 26
|                       |  |                                                                                                                                     |   
|Exhibit 10.1           |  | Wild Oats Markets, Inc. David B.
      Clark Equity Incentive Plan                                                                  |   
|                       |  |                                                                                                                                     |   
|Exhibit 10.2           |  | Wild Oats Markets, Inc. Severance
      Agreement between Registrant and David B. Clark, dated June 2, 2003                         |   
|                       |  |                                                                                                                                     |   
|Exhibit 31.1           |  | CEO Certification in Accordance with Section
      302 of the Sarbanes-Oxley Act of 2002                                            |   
|                       |  |                                                                                                                                     |   
|Exhibit 31.2           |  | CFO Certification in Accordance with Section
      302 of the Sarbanes-Oxley Act of 2002                                            |   
|                       |  |                                                                                                                                     |   
|Exhibit 32.1           |  | CEO Certification in Accordance with Section
      906 of the Sarbanes-Oxley Act of 2002                                            |   
|                       |  |                                                                                                                                     |   
|Exhibit 32.2           |  | CEO Certification in Accordance with Section
      906 of the Sarbanes-Oxley Act of 2002                                            |   
|                       |  |                                                                                                                                     |   
|                       |  |                                                                                                                                     |   



2

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TABLE OF CONTENTS



PART I.  FINANCIAL
INFORMATION



Item
1.  Financial Statements



WILD OATS MARKETS, INC.

Consolidated Balance Sheets

(in thousands, except share data)



|                                         |                                   |                                                                                                                                                   |                            |          | June 28,        |          | December 28,
|---------------------------------------- | --------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------- | --------------- | -------- | ------------
|                                         |                                   |                                                                                                                                                   |                            |          | 2003(unaudited) |          | 2002        
|                                         |                                   |                                                                                                                                                   |                            |          |                 |          |             
|                                         |                                   |                                                                                                                                                   |                            |         
|ASSETS                                   |                                   |                                                                                                                                                   |                            |         
|                                         |                                   |                                                                                                                                                   |                            |          |                
|                                         | Current assets:                   |                                                                                                                                                   |                            |          |                
|                                         |                                   | Cash and cash equivalents                                                                                                                         |                            | $ 15,275 |                 | $ 11,367
|                                         |                                   | Inventories                                                                                                                                       |                            | 47,785   |                 | 47,175  
|                                         |                                   | Accounts receivable                                                                                                                               |                            | 3,087    |                 | 2,524   
|                                         |                                   | Income tax receivable                                                                                                                             |                            | 328      |                 | 250     
|                                         |                                   | Prepaid expenses and other current
    assets                                                                                                     |                            | 2,252    |                 | 2,163   
|                                         |                                   | Deferred tax asset                                                                                                                                |                            | 4,910    |                 | 4,656   
|                                         |                                   |                                                                                                                                                   |                            |          |                 |         
|                                         |                                   |                                                                                                                                                   | Total current assets       |          | 73,637          |          | 68,135      
|                                         |                                   |                                                                                                                                                   |                            |          |                 |          |             
|                                         | Property and equipment, net       |                                                                                                                                                   | 123,963                    |          | 122,359        
|                                         | Goodwill, net                     |                                                                                                                                                   | 106,404                    |          | 106,404        
|                                         | Other intangible assets, net      |                                                                                                                                                   | 7,244                      |          | 7,415          
|                                         | Deposits and other assets         |                                                                                                                                                   | 3,926                      |          | 3,622          
|                                         | Deferred tax asset                |                                                                                                                                                   | 13,050                     |          | 15,650         
|                                         |                                   |                                                                                                                                                   |                            |          |                
|                                         |                                   |                                                                                                                                                   |                            |          | $ 328,224       |          | $ 323,585   
|                                         |                                   |                                                                                                                                                   |                            |          |                 |          |             
|                                         |                                   |                                                                                                                                                   |                            |         
|LIABILITIES AND
    STOCKHOLDERS EQUITY |                                   |                                                                                                                                                   |                            |         
|                                         |                                   |                                                                                                                                                   |                            |          |                
|                                         | Current liabilities:              |                                                                                                                                                   |                            |          |                
|                                         |                                   | Accounts payable                                                                                                                                  |                            | $ 42,622 |                 | $ 34,819
|                                         |                                   | Book overdraft                                                                                                                                    |                            | 22,483   |                 | 22,777  
|                                         |                                   | Accrued liabilities                                                                                                                               |                            | 35,955   |                 | 37,943  
|                                         |                                   | Current portion of debt and
    capital leases                                                                                                    |                            | 16       |                 | 146     
|                                         |                                   |                                                                                                                                                   |                            |          |                 |         
|                                         |                                   |                                                                                                                                                   | Total current liabilities  |          | 101,076         |          | 95,685      
|                                         |                                   |                                                                                                                                                   |                            |          |                 |          |             
|                                         | Long-term debt and capital leases |                                                                                                                                                   | 39,886                     |          | 43,075         
|                                         | Other long-term obligations       |                                                                                                                                                   | 14,330                     |          | 17,923         
|                                         |                                   |                                                                                                                                                   |                            |          |                
|                                         |                                   |                                                                                                                                                   |                            |          | 155,292         |          | 156,683     
|                                         | Commitments and contingencies     |                                                                                                                                                   |                            |          |                
|                                         |                                   |                                                                                                                                                   |                            |          |                
|                                         | Stockholders equity:             |                                                                                                                                                   |                            |          |                
|                                         |                                   | Preferred stock, $0.001 par value;
    5,000,000 shares authorized, no shares issued and outstanding                                              |                            | -        |                 | -       
|                                         |                                   | Common stock, $0.001 par value;
    60,000,000 shares    authorized, 29,826,948 and 29,658,660 shares issued
    and    outstanding, respectively |                            | 30       |                 | 30      
|                                         |                                   | Additional paid-in capital                                                                                                                        |                            | 215,175  |                 | 213,482 
|                                         |                                   | Note receivable, related party                                                                                                                    |                            | (10,482) |                 | (10,200)
|                                         |                                   | Accumulated deficit                                                                                                                               |                            | (31,745) |                 | (35,368)
|                                         |                                   | Accumulated other comprehensive
    loss                                                                                                          |                            | (46)     |                 | (1,042) 
|                                         |                                   |                                                                                                                                                   |                            |          |                 |         
|                                         |                                   |                                                                                                                                                   | Total stockholders equity |          | 172,932         |          | 166,902     
|                                         |                                   |                                                                                                                                                   |                            |          | $ 328,224       |          | $ 323,585   
|                                         |                                   |                                                                                                                                                   |                            |          |                 |          |             



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



3

---



WILD OATS MARKETS, INC.

Consolidated Statements
of Operations

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



|                                                                     |                                                     |                            |        |           | THREE MONTHS
    ENDED |           | SIX MONTHS
    ENDED
|-------------------------------------------------------------------- | --------------------------------------------------- | -------------------------- | ------ | --------- | ---------------------- | --------- | --------------------
|                                                                     |                                                     |                            |        |           |                        |           |                     
|                                                                     |                                                     |                            |        |           | June 28,               |           | June 29,            
|                                                                     |                                                     |                            |        |           | 2003                   |           | 2002                
|                                                                     |                                                     |                            |        |           |                        |           |                     
|                                                                     |                                                     |                            |        |           |                        |           |                     
|Sales                                                                |                                                     | $ 242,248                  |        | $ 236,186 |                        | $ 478,235 |                     
|Cost of goods sold and occupancy
    costs                           |                                                     | 171,026                    |        | 164,758   |                        | 336,154   |                     
|                                                                     |                                                     |                            |        |           |                        |           |                     
|Gross profit                                                         |                                                     | 71,222                     |        | 71,428    |                        | 142,081   |                     
|Operating expenses:                                                  |                                                     |                            |        |           |                        |           |                     
|                                                                     | Direct store expenses                               |                            | 50,327 |           | 51,510                 |           | 101,191             
|                                                                     | Loss (gain) on disposal of assets                   |                            | (100)  |           | -                      |           | 1,368               
|                                                                     | Selling, general and
    administrative    expenses |                            | 16,797 |           | 14,761                 |           | 32,774              
|                                                                     | Pre-opening expenses                                |                            | 101    |           | 645                    |           | 1,023               
|                                                                     | Restructuring and asset impairment
       income    |                            | (145)  |           | -                      |           | (1,881)             
|                                                                     |                                                     |                            |        |           |                        |           |                     
|                                                                     |                                                     | Income from operations     |        | 4,242     |                        | 4,512     |                     
|                                                                     | Interest income                                     |                            | 179    |           | 193                    |           | 355                 
|                                                                     | Interest expense                                    |                            | (842)  |           | (2,347)                |           | (1,835)             
|                                                                     | Loss on early extinguishment of
    debt            |                            | -      |           | -                      |           | (186)               
|                                                                     |                                                     |                            |        |           |                        |           |                     
|                                                                     |                                                     | Income before income taxes |        | 3,579     |                        | 2,358     |                     
|                                                                     | Income tax expense                                  |                            | 1,396  |           | 860                    |           | 2,317               
|                                                                     |                                                     |                            |        |           |                        |           |                     
|Net income                                                           |                                                     | $ 2,183                    |        | $ 1,498   |                        | $ 3,623   |                     
|                                                                     |                                                     |                            |        |           |                        |           |                     
|                                                                     |                                                     |                            |        |           |                        |           |                     
|Net income per common share:                                         |                                                     |                            |        |           |                        |           |                     
|                                                                     | Basic                                               |                            | $ 0.07 |           | $ 0.06                 |           | $ 0.12              
|                                                                     | Diluted                                             |                            | $ 0.07 |           | $ 0.06                 |           | $ 0.12              
|                                                                     |                                                     |                            |        |           |                        |           |                     
|Weighted average common shares
       outstanding, basic             |                                                     | 29,775                     |        | 25,016    |                        | 29,739    |                     
|Dilutive effect of stock options                                     |                                                     | 487                        |        | 929       |                        | 323       |                     
|                                                                     |                                                     |                            |        |           |                        |           |                     
|Weighted average common shares
       outstanding, assuming dilution |                                                     | 30,262                     |        | 25,945    |                        | 30,062    |                     
|                                                                     |                                                     |                            |        |           |                        |           |                     



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 28,               |         | June 29,            
|                                   |                                                                                                                                                         |         |     |         | 2003                   |         | 2002                
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     
|Net income                         |                                                                                                                                                         | $ 2,183 |     | $ 1,498 |                        | $ 3,623 |                     
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     
|Other comprehensive income (loss): |                                                                                                                                                         |         |     |         |                        |         |                     
|                                   | Foreign currency translation 
         adjustments arising during 
         the period                                                                  |         | 270 |         | 210                    |         | 488                 
|                                   | Recognition of hedge results 
         to interest expense during 
         the period, net of tax of $153, 
         $182, $316, and 370, respectively |         | 256 |         | 303                    |         | 528                 
|                                   | Change in market value of cash 
         flow hedge during the period, 
         net of tax of $0, $194, $12, and 
         $167, respectively          |         | 1   |         | (323)                  |         | (20)                
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     
|Other comprehensive income         |                                                                                                                                                         | 527     |     | 190     |                        | 996     |                     
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     
|Comprehensive income               |                                                                                                                                                         | $ 2,710 |     | $ 1,688 |                        | $ 4,619 |                     
|                                   |                                                                                                                                                         |         |     |         |                        |         |                     



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 28,            
|                                                        |                                                                                   |                                                                |                                               |          | 2003                
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                |                                               |          |                     
|CASH FLOWS FROM OPERATING
    ACTIVITIES                |                                                                                   |                                                                |                                               |         
|                                                        | Net income                                                                        |                                                                | $ 3,623                                       |          | $ 2,166             
|                                                        | Adjustments to reconcile net
    income to net cash from    operating activities: |                                                                |                                               |          |                     
|                                                        |                                                                                   | Depreciation and amortization                                  |                                               | 10,866   |                     
|                                                        |                                                                                   | Loss (gain) on disposal of
    property and equipment          |                                               | 1,368    |                     
|                                                        |                                                                                   | Deferred tax expense                                           |                                               | 1,983    |                     
|                                                        |                                                                                   | Income tax benefit from employee
    exercise of stock options | 111                                           |          |                     
|                                                        |                                                                                   | Restructuring and asset impairment
    income                  |                                               | (1,881)  |                     
|                                                        |                                                                                   | Loss on early extinguishment of
    long-term debt             |                                               | 186      |                     
|                                                        |                                                                                   | Other                                                          |                                               | (5)      |                     
|                                                        | Change in assets and liabilities:                                                 |                                                                |                                               |          |                     
|                                                        |                                                                                   | Inventories, net                                               |                                               | (455)    |                     
|                                                        |                                                                                   | Receivables, net, and other assets                             |                                               | (281)    |                     
|                                                        |                                                                                   | Accounts payable                                               |                                               | 7,416    |                     
|                                                        |                                                                                   | Accrued liabilities                                            |                                               | (2,884)  |                     
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                | Net cash provided by operating
    activities |          | 20,047              
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                |                                               |          |                     
|CASH FLOWS FROM INVESTING
    ACTIVITIES                |                                                                                   |                                                                |                                               |         
|                                                        | Capital expenditures                                                              |                                                                | (13,516)                                      |          | (4,644)             
|                                                        | Proceeds from sale of property and
    equipment                                  |                                                                | 4                                             |          | 5                   
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                | Net cash used in investing
    activities     |          | (13,512)            
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                |                                               |          |                     
|CASH FLOWS FROM FINANCING
    ACTIVITIES                |                                                                                   |                                                                |                                               |         
|                                                        | Net repayments under
    line-of-credit agreement                                 |                                                                | (4,100)                                       |          | (21,000)            
|                                                        | Repayments on notes payable,
    long-term debt and capital    leases             |                                                                | (37,098)                                      |          | (5,730)             
|                                                        | Proceeds from long term debt                                                      |                                                                | 37,879                                        |          | -                   
|                                                        | Payment of debt issuance costs                                                    |                                                                | (721)                                         |          | -                   
|                                                        | Proceeds from issuance of common
    stock                                        |                                                                | 1,343                                         |          | 1,434               
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                | Net cash used in financing
    activities     |          | (2,697)             
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                |                                               |          |                     
|Effect of exchange rate changes on
    cash             |                                                                                   | 70                                                             |                                               | 54      
|                                                        |                                                                                   |                                                                |                                               |          |                     
|Net increase(decrease) in cash and
    cash equivalents |                                                                                   | 3,908                                                          |                                               | (6,112) 
|Cash and cash equivalents at
    beginning of period    |                                                                                   | 11,367                                                         |                                               | 18,840  
|                                                        |                                                                                   |                                                                |                                               |          |                     
|Cash and cash equivalents at end
    of period          |                                                                                   | $ 15,275                                                       |                                               | $ 12,728
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        |                                                                                   |                                                                |                                               |          |                     
|NON-CASH INVESTING AND
    FINANCING ACTIVITIES         |                                                                                   |                                                                |                                               |         
|                                                        | Stock issued in payment of note
    payable                                       |                                                                |                                               |          | $ 1,210             
|                                                        |                                                                                   |                                                                |                                               |          |                     
|                                                        | Settlement of note payable against
    accounts receivable                        |                                                                |                                               |          | $ 200               
|                                                        |                                                                                   |                                                                |                                               |          |                     





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



6

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TABLE OF CONTENTS

WILD OATS MARKETS, INC.

Notes to
Consolidated Financial Statements

(unaudited)



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

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

The consolidated balance sheet as of June 28, 2003, the consolidated
statements of operations and comprehensive income for the three months and six months
ended June 28, 2003 and June 29, 2002, as well as the consolidated statements of cash
flows for the six months ended June 28, 2003 and June 29, 2002 have been prepared without
an audit. In the opinion of management, all adjustments, consisting only of normal,
recurring adjustments necessary for a fair statement thereof, have been made.

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

The unaudited information included in the consolidated financial statements for the
three months and six months ended June 28, 2003 and June 29 2002 includes the results of
operations of the Company for the 13 weeks and 26 weeks then ended.



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

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

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

The FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities, An Interpretation of ARB 51 ("FIN 46"). The
primary objectives of FIN 46 are to provide guidance on the identification of entities for
which control is achieved through means other than through voting rights ("variable
interest entities" or "VIEs") and how to determine when and which business
enterprise should consolidate the VIE (the "primary beneficiary"). This new
model for consolidation applies to an entity which either (1) the equity investors (if
any) do not have a controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entitys activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires that both
the primary beneficiary and all other enterprises with a significant variable interest in
a VIE make additional disclosures. As of June 28, 2003, the Company was not party to a
VIE; therefore, management believes FIN 46 will not have a material effect on the Company.



7

---





In November 2002, the FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It also
clarifies that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the guarantee. The
initial measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company has adopted the
disclosure provisions as of December 28, 2002 and it had no impact.

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

During the quarter ended June 29, 2002, the Company adopted the
provisions of SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things,
rescinds SFAS No. 4, which required that gains and losses from extinguishment of debt be
classified as an extraordinary item, net of related income tax effects. SFAS No. 145 is to
be applied in fiscal years beginning after May 15, 2002 and encourages early application
of the rescission of SFAS No. 4. In connection with the refinancing of its credit
facility, the Company incurred a non-cash charge to write off the remaining unamortized
debt issuance cost from its prior credit facility in the first quarter of fiscal 2003 of
approximately $186,000, which is included in income from continuing operations.



|3. | New Accounting
    Pronouncements
|-- | ---------------------------------

During April 2003, the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. This statement amends
and clarifies financial accounting and reporting for derivative instruments and hedging
activities, resulting primarily from decisions reached by the FASB Derivatives
Implementation Group subsequent to the original issuance of SFAS No. 133. This Statement
is generally effective prospectively for contracts and hedging relationships entered into
after June 30, 2003. Management believes that adoption of SFAS No. 149 will have minimal
impact on the Company.

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



|4. | Stock-Based Compensation
|-- | ------------------------

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



8

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

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

|                        |                                                                                                                                                                     |                       |       |         | THREE MONTHS
    ENDED |         | SIX MONTHS
    ENDED
|----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----- | ------- | ---------------------- | ------- | --------------------
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     |                       |       |         | June 28,               |         | June 29,            
|                        |                                                                                                                                                                     |                       |       |         | 2003                   |         | 2002                
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|Net income, as reported |                                                                                                                                                                     | $ 2,183               |       | $ 1,498 |                        | $ 3,623 |                     
|                        | Add: Stock-based employee 
         compensation expense 
         included in reported net income, 
         net of tax                                            |                       | 23    |         | 117                    |         | 155                 
|                        | Deduct: Total stock-based 
         employee compensation 
         expense determined under 
         fair value based method for 
         all awards, net of tax |                       | (771) |         | (709)                  |         | (1,409)             
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     | Pro forma net income  |       | 1,435   |                        | 906     |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        | Earnings per share                                                                                                                                                  |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     | Basic  as reported   |       | $ 0.07  |                        | $ 0.06  |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     | Basic  pro forma     |       | $ 0.05  |                        | $ 0.04  |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     | Diluted  as reported |       | $ 0.07  |                        | $ 0.06  |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     
|                        |                                                                                                                                                                     | Diluted - pro forma   |       | $ 0.05  |                        | $ 0.03  |                     
|                        |                                                                                                                                                                     |                       |       |         |                        |         |                     



|5. | Property and Equipment
|-- | ----------------------

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



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TABLE OF CONTENTS



|6. | Debt Covenant Compliance and Liquidity
|-- | --------------------------------------

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

As part of the new credit facility, the Company gave the lenders
collateral in the form of security interest in accounts, equipment and fixtures, inventory
and other assets. The Company has also granted a leasehold mortgage in those leasehold
interests previously mortgaged to secure the former credit facility, although it has no
obligation to provide an interest in any new leaseholds. The new credit facility contains
limitations on capital expenditures and the signing of new leases. The interest rate on
the facility is currently either prime plus 1.0% or one-month LIBOR plus 2.25%, at the
Companys election, and the rates modify depending on the ratio of average total
funded debt, as defined under the credit facility, plus six times rent expense, to EBITDAR
for the four fiscal quarter periods then ended, as calculated on the Companys
quarterly compliance certificate. The Company believes that cash generated from operations
and available under its credit facility will be sufficient to meet its capital expenditure
requirements in fiscal 2003.

The Company anticipates that it will comply with the monthly and
quarterly financial covenants in the credit agreement. In the event that business
conditions worsen, management has identified contingency actions to enable the Company to
remain in compliance with the financial covenants. Even if the Company 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.



|7. | Derivatives and Hedging
    Activities
|-- | --------------------------------------

In accordance with the Companys interest rate risk-management
strategy and as required by the terms of the Companys credit facility, in September
2000, the Company entered into a swap agreement to hedge the interest rate on $30.0
million of its borrowings as of March 29, 2003. The swap agreement locks in a one-month
LIBOR rate of 6.7% and expires in August 2003. The fair value of the swap at June 28, 2003
was ($136,000), which has been recorded in the accompanying balance sheet in accrued
liabilities. There is no obligation to renew the swap under the refinanced facility.



|8. | Earnings Per Share
|-- | ------------------

Earnings per share are calculated in accordance with the provisions of
SFAS No. 128, Earnings Per Share.SFAS No. 128 requires the Company to report both
basic earnings per share, which is based on the weighted-average number of common shares
outstanding, and diluted earnings per share, which is based on the weighted-average number
of common shares outstanding and all dilutive potential common shares outstanding, except
where the effect of their inclusion would be anti-dilutive. Anti-dilutive stock options of
1,212,503 and 1,420,861 for the three months and 1,701,874 and 1,288,177 for the six
months ended June 28, 2003 and June 29, 2002, respectively, were not included in the
earnings per share calculations.



10

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TABLE OF CONTENTS



|9. | Goodwill and Finite
    Lived Intangible Assets
|-- | -----------------------------------------------

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

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

| |  |                                           |  |         | June 28, |         | December 28,
| |  | ----------------------------------------- |  | ------- | -------- | ------- | ------------
| |  |                                           |  |         | 2003     |         | 2002        
| |  |                                           |  |         |          |         |             
| |  |                                           |  |        
| |  | Leasehold interests                       |  | $ 9,035 |          | $ 9,035
| |  | Liquor licenses and other
    intangibles |  | 168     |          | 104    
| |  |                                           |  |         |          |         |             
| |  |                                           |  | 9,203   |          | 9,139  
| |  | Less accumulated amortization             |  | (1,959) |          | (1,724)
| |  |                                           |  |         |          |         |             
| |  |                                           |  | $ 7,244 |          | $ 7,415
| |  |                                           |  |         |          |        



Amortization expense related to finite lived intangible assets was
$121,000 and $119,000 for the three months and $243,000 and $237,000 for the six months
ended June 28, 2003 and June 29, 2002, respectively. The estimated amortization of finite
lived intangible assets for each of the five fiscal years ending in fiscal 2007 is as
follows (in thousands):

| | FISCAL 
    YEAR |  | AMORTIZATION EXPENSE | 
| | ---------------- |  | -------------------- | 
| |                  |  |                      | 
| |                  |  |                      | 
| | 2003             |  | $ 484                | 
| | 2004             |  | $ 485                | 
| | 2005             |  | $ 485                | 
| | 2006             |  | $ 469                | 
| | 2007             |  | $ 465                | 



|10. | Restructuring and Asset
    Impairment Income
|--- | ---------------------------------------------

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

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



Details of the significant components are as follows:

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



11

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- Severance for employees terminated in the second quarter of fiscal 2003 ($117,000 of
    restructuring expense) During the second quarter of fiscal 2003, 37 employees
    were notified of their involuntary termination in conjunction with the closure of two
    stores in Irvine and Los Angeles, California. As of June 28, 2003, $41,000 of involuntary
    termination benefits had been paid to these employees; the remaining benefits of $76,000
    will be paid during the third quarter of fiscal 2003.

- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1,933,000 of restructuring expense)

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

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



Details of the significant components are as follows:

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

- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1,295,000 of restructuring income)



12

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

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



|Note: | 1. The restructuring accrual balance
    consists of lease-related liabilities.                                              
|----- | -----------------------------------------------------------------------------------------------------------------------------
|      | 2. The restructuring accrual balance
    consists of lease-related liabilities and $76,000 for employee termination benefits.



As of June 28, 2003, the components of the accruals related to the Companys
restructuring activities are accrued liabilities of $3.1 million and other long-term
obligations of $9.4 million.



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

The Company has a $19.3 million net deferred tax asset as of June 28,
2003, primarily as a result of the $54.9 million of restructuring and asset impairment
charges recorded during fiscal 2001. For the three months ended June 28, 2003, the Company
recorded $1.4 million of income tax expense, primarily as a result of income before income
taxes of $3.6 million during the period. For the six months ended June 28, 2003, the
Company recorded $2.3 million of income tax expense, as a result of income before income
taxes of $5.9 million during the period. The recoverability of the net deferred tax asset
is primarily dependent upon the Company generating sufficient taxable income in the
future. Although realization of the net deferred tax asset is not assured, the Company
believes it is more likely than not that the Company will generate sufficient taxable
income in the future to realize the full amount of the deferred tax asset. The Company's
assessment is based on projections that assume that the Company can maintain its current
store contribution margin. Furthermore, the Company expects to maintain the aggregate
sales growth experienced over the past five years, which would generate additional taxable
income. The primary uncertainty related to the realization of the deferred tax asset is
the Companys ability to achieve its four-year business plan and generate future
taxable income to realize the full amount of the deferred tax asset. The Company believes
that the sales, gross margin, store contribution margin, and selling, general and
administrative expenses assumptions in its four-year business plan are reasonable and,
more likely than not, attainable. The Company will continue to assess the recoverability
of the net deferred tax asset, and to the extent it is determined in the future that a
valuation allowance is required, it will be recognized as a charge to earnings at that
time.



13

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

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



|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 in October 2002 by
representative plaintiffs alleging to represent two classes of plaintiffs  those who
contracted Hepatitis A allegedly through the consumption of food purchased at a Capers
Community Market in the spring of 2002, and those who were inoculated against Hepatitis A
as a result of news alerts by Capers and the Vancouver Health Authority. In April 2003,
the plaintiffs filed a motion for certification of the litigation as a class action
lawsuit. 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.

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

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



14

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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

Marketing and Merchandising Initiatives and Operational Improvements.
In fiscal 2003, we are implementing or completing initiatives and controls, designed to
drive continued improvement in our business and, ultimately, promote steady growth in
value to our stakeholders. These initiatives include, but are not limited to:

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

We continue to execute our real estate strategy. To the date of this
report, we have signed leases or letters of intent for 30 proposed new sites opening in
fiscal 2003, fiscal 2004 and fiscal 2005. In the second quarter of fiscal 2003 and
continuing to the date of filing this report on Form 10-Q, we signed 13 new leases for
stores scheduled to open in fiscal 2003 and 2004. These include locations for both our
Wild Oats and Henrys Marketplace stores.

New Marketing Initiatives: In the second quarter of fiscal 2003, we
launched new marketing initiatives to complement our existing advertising flyer program in
key markets, including Denver, Colorado, Albuquerque, New Mexico and Portland, Oregon.
These initiatives included direct mail with coupons and radio advertising. Based on the
early positive results of these programs, we intend to use these marketing tactics on a
market-by-market basis in the future where store densities in a market warrant their use,
or where we face increasing competition.

Store formats. We operate two store formats: the natural foods
supermarket and farmers market formats. The natural foods supermarket format store,
operated under the Wild Oats(R) Natural Marketplace trade name,
is generally 20,000 to 35,000 gross square feet, and the farmers market store, operated
under the Henrys Marketplace(R) and Sun Harvest(TM) tradenames, is generally 15,000 to 25,000 gross square feet.

Store openings, closing, remodels and property dispositions. At
June 28, 2003, we had 100 stores located in 25 states and Canada, as compared to 102
stores in 23 states and Canada at the end of the second quarter of fiscal 2002. In the
second quarter of fiscal 2003, we opened no new stores and closed under-performing stores
in Los Angeles and Irvine, California. In fiscal 2003, through the date of this report, we
have opened four new stores, including one new store in Lexington, Kentucky opened in
August 2003. We currently have new store sites under construction and scheduled for
opening in 2003 in Chino Hills, California; Colorado Springs and Denver, Colorado;
Franklin, Tennessee and Park City, Utah. In fiscal 2003, we have commenced remodeling
and/or major resetting of 15 of our stores, six of which were completed in the second
quarter of fiscal 2003.



15

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We currently have an inventory of 10 vacant sites comprising closed
store and office locations and excess unoccupied space acquired during acquisitions or
other leasing transactions, for which we have rent obligations; appropriate accruals have
been made for such obligations. In the second quarter of fiscal 2003, we added one closed
store to the inventory of vacant sites, sublet one store site and negotiated the
termination of two leases.



Factors Impacting Results of Operations

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

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

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

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

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

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

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

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

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



16

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

The Company currently purchases approximately 28.2% of its aggregate
cost of goods for all product categories for all stores from its existing primary
distributor, Tree of Life, Inc. Any significant disruption in the supply of goods from
Tree of Life or other distributors or vendors could have a material impact on our overall
sales volume and cost of goods.

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

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

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

- Insurance and Self-Insurance Reserves  The Company is self-insured for certain
    losses relating to workers compensation claims, general liability, and employee
    medical and dental benefits. The Company has purchased stop-loss coverage to limit its
    exposure to any significant levels of claims. Self-insured losses are accrued based upon
    the Companys estimates of the aggregate insured claims incurred using certain
    actuarial assumptions followed in the insurance industry and the Companys historical
    claim experiences. If the Company experiences an increase in claims, if actuarial
    assumptions are inaccurate, or if insurance industry costs increase beyond current
    expectations, then additional reserves may be required. Based upon critical review of
    actual historical claims development patterns for the Company, as well as for the
    industry, in the second quarter of fiscal 2003, the Company revised certain claim
    development assumptions used in estimating its workers compensation and general
    liability reserves for earlier claim years, resulting in a reduction of selling, general,
    administrative expenses, and direct store expenses.

- Inventory Valuation  Store inventories are valued principally at the lower of cost
    or market, with cost primarily determined under the retail inventory method on a first-in
    first-out basis. Certain highly perishable inventories are valued primarily at the lower
    of cost or market, with cost determined on a first-in, first-out basis. Under the retail
    inventory method, the valuation of inventories at cost and the resulting gross margins are
    determined by applying a cost-to-retail ratio for various groupings of similar items to
    the retail value of inventories. Inherent in the retail inventory method calculations are
    certain management judgments and estimates, including shrinkage, which could impact the
    ending inventory valuation at cost as well as the resulting gross margins.

See our Fiscal 2002 Annual Report filed on Form 10-K for the period ended December 28,
2002, for additional disclosures of critical accounting policies. See also "Notes
to Consolidated Financial Statements  Note 2  Implementation of New Accounting
Pronouncements and Note 3  New Accounting Pronouncements" for disclosure of
the effect of new accounting pronouncements during the second quarter of fiscal 2003.



17

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Results of Operations

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

| |                                                     |  |        | THREE MONTHS
    ENDED |        | SIX MONTHS
    ENDED
| | --------------------------------------------------- |  | ------ | ---------------------- | ------ | --------------------
| |                                                     |  |        |                        |        |                     
| |                                                     |  |        | June 28,               |        | June 29,            
| |                                                     |  |        | 2003                   |        | 2002                
| |                                                     |  |        |                        |        |                     
| |                                                     |  |        |                        |        |                     
| | Sales                                               |  | 100.0% |                        | 100.0% |                     
| | Cost of goods sold and occupancy
       costs       |  | 70.6   |                        | 69.8   |                     
| |                                                     |  |        |                        |        |                     
| | Gross margin                                        |  | 29.4   |                        | 30.2   |                     
| | Direct store expenses                               |  | 20.8   |                        | 21.8   |                     
| | Loss (gain) on disposal of assets                   |  | 0.0    |                        | (0.0)  |                     
| | Selling, general and
    administrative    expenses |  | 6.9    |                        | 6.2    |                     
| | Pre-opening expenses                                |  | 0.0    |                        | 0.3    |                     
| | Restructuring and asset impairment
       income    |  | (0.1)  |                        | (0.0)  |                     
| |                                                     |  |        |                        |        |                     
| | Income from operations                              |  | 1.8    |                        | 1.9    |                     
| | Interest income                                     |  | 0.1    |                        | 0.0    |                     
| | Interest expense                                    |  | (0.4)  |                        | 0.9    |                     
| | Loss on early extinguishment of
    debt            |  | 0.0    |                        | 0.0    |                     
| |                                                     |  |        |                        |        |                     
| | Income before income taxes                          |  | 1.5    |                        | 1.0    |                     
| | Income tax expense                                  |  | 0.6    |                        | 0.4    |                     
| |                                                     |  |        |                        |        |                     
| | Net income                                          |  | 0.9%   |                        | 0.6%   |                     
| |                                                     |  |        |                        |        |                     

Sales. Sales for the three months ended June 28, 2003, increased
2.6% to $242.2 million from $236.2 million in the same period in fiscal 2002. Sales for
the six months ended June 28, 2003, increased 1.9% to $478.2 million from $469.2 million
in the same period in fiscal 2002. The quarter and year-to-date increases were primarily
attributed to three new store openings in the first six months of fiscal 2003, as compared
to one new store opening in the first six months of fiscal 2002. We calculate comparable
store sales net of coupons and discounts commencing in the thirteenth full month of
operations for new, relocated and acquired stores. Comparable store sales were negative
0.1% for the second quarter of fiscal 2003, as compared to a positive 5.2% in the second
quarter of fiscal 2002, due to increased competitive pressures, continued operational
modifications and issues, a continued weak economy and road construction adjacent to 5% of
our stores. We anticipate sales will slowly increase as we open five additional new stores
in the remainder of fiscal 2003 and move into the holiday season.

Gross Profit. Gross profit for the three months ended June 28, 2003
decreased 0.3% to $71.2 million from $71.4 million in the same period in fiscal 2002.
Gross profit for the six months ended June 28, 2003, increased 2.2% to $142.1 million from
$139.1 million in the same period in fiscal 2002, primarily due to the higher merchandise
margins in key product categories in the first quarter of fiscal 2003. As a percentage of
sales, gross profit decreased to 29.4% in the second quarter of fiscal 2003 from 30.2 % in
the same period in fiscal 2002, due partly to increased produce costs, coupon redemptions
from direct marketing campaigns in targeted markets, as well as discounts given on close
out merchandise as part of the closure of two stores in the second quarter of fiscal 2003
and the Companys on-going efforts to reduce slow-moving items to make room for new
products in its stores.



18

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Direct Store Expenses. Direct store expenses for the three
months ended June 28, 2003 decreased 2.3% to $50.3 million from $51.5 million in the same
period in fiscal 2002. Direct store expenses for the six months ended June 28, 2003
decreased 0.7% to $101.2 million from $101.9 million in the same period in fiscal 2002,
due to a continued focus on store-level expenses, as well as a significant decline in
workers compensation liability estimates resulting from lower rates of injury
incidents. See "Managements Discussion and Analysis of Financial Condition
and Results of Operations  Critical Accounting Policies and Estimates."
  As a percentage of sales, direct store expenses decreased to 20.7% in the second
quarter of fiscal 2003 from 21.8% in the same period in fiscal 2002, as a result of
consistent execution of operational improvements.

Loss (Gain) on Disposal of Assets. Loss (gain) on disposal of
assets for the six months ended June 28, 2003 increased to a $1.4 million loss from a
$57,000 gain in the same period in fiscal 2002. During the first quarter of fiscal 2003,
we substantially completed a physical inventory of fixtures and equipment and recorded a
$1.5 million loss on disposal of fixtures and equipment (approximately 1.2% of our fixed
assets carrying value) that we will no longer use in our stores.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 28, 2003 increased 13.8% to $16.8
million from $14.8 million in the same period in fiscal 2002. Selling, general and
administrative expenses for the six months ended June 28, 2003 increased 13.3% to $32.8
million from $28.9 million in the same period in fiscal 2002, due to increased marketing
spending and increases in staffing to support certain IT initiatives focused on back door
receiving, order replenishment, and labor scheduling, as well as the addition of regional
staff to open and support new store growth. As a percentage of sales, selling, general and
administrative expenses increased to 6.9% in the second quarter of fiscal 2003 from 6.2%
in the same period in fiscal 2002. We anticipate that selling, general and administrative
expenses will gradually decrease as a percentage of sales during the remainder of the year
as we focus on expense control and add five new stores to our sales base.

Pre-Opening Expenses. Pre-opening expenses for the three months
ended June 28, 2003, decreased to $101,000 compared to $645,000 during the same period in
fiscal 2002. Pre-opening expenses for the six months ended June 28, 2003, increased 0.9%
over the same period in fiscal 2002 due to the opening of three stores in the first six
months of fiscal 2003, as compared to one store opening in the same period in 2002. As a
percentage of sales, pre-opening expenses decreased to zero percent in the second quarter
of fiscal 2003 from 0.3% in the same period in fiscal 2002, due to the opening of no new
stores, as compared to the opening of one new store in the same period in 2002.
Pre-opening expenses should increase in the aggregate in the third and fourth quarters as
we prepare for five new store openings in the remainder of fiscal 2003.

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

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

- Severance for employees terminated in the second quarter of fiscal 2003 ($117,000 of
    restructuring expense)

- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale $(1,933,000 of restructuring expense)



19

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

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

- Changes in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1,295,000 of restructuring income)

Interest Income. Interest income for the three months ended June
28, 2003 decreased 7.3% to $179,000 from $193,000 for the same period in fiscal 2002, as a
result of a lower level of daily-invested funds. Interest income for the six months ended
June 28, 2003 decreased 4.8% to $355,000 from $373,000 for the same period in fiscal 2002,
due to a lower level of invested funds.

Interest Expense. Interest expense for the three months ended June
28, 2003 decreased 64.1% to $842,000 from $2.3 million in the same period in fiscal 2002,
due to decreased borrowings during the three-month period. Interest expense for the
six-month period ended June 28, 2003 decreased 61.6% to $1.8 million from $4.8 million as
compared with the same period in fiscal 2002, due to decreased borrowings and the lower
interest rate on our current credit facility entered into in February 2003. Due to the
current state of the U.S. economy, we believe that the variable interest rates will remain
constant during the next six to 12 months. See "Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and Capital
Resources"below.

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

Income Tax Expense. For the three months ended June 28, 2003, we
recorded $1.4 million of income tax expense, as a result of income before income taxes of
$3.6 million during the period. Income tax expense for the six months ended June 28, 2003
is $2.3 million as a result of income before taxes of $5.9 million during the same period.
Our effective tax rate on income from continuing operations is expected to be in the range
of 38.5% to 40.0% for fiscal 2003 as compared to a fiscal 2002 rate of 40.7%. See "Managements
Discussion and Analysis of Financial Conditions and Results of Operations  Liquidity
and Capital Resources"below.



20

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Liquidity and Capital Resources

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

Net cash provided by operating activities was $20.0 million during the
first six months of fiscal 2003 as compared to $23.8 million during the same period in
fiscal 2002. Cash from operating activities decreased during this period primarily due to
changes in net income and working capital items. We have not required significant external
financing to support inventory requirements at our existing and new stores because we have
been able to rely on vendor financing for most of the inventory costs, and we anticipate
that vendor financing will continue to be available for new store openings.

Net cash used in investing activities was $13.5 million during the
first six months of fiscal 2003 as compared to $4.6 million during the same period in
fiscal 2002. The increase is due to an increase in capital expenditures for new stores and
remodels.

Net cash used in financing activities was $2.7 million during the first
six months of fiscal 2003 as compared to $25.3 million during the same period in fiscal
2002. The decrease reflects lower debt repayments under the new credit facility due to an
increase in capital expenditures and a decrease in cash flow from operations.

We have a net deferred tax asset of $17.9 million on our balance sheet
as of June 28, 2003, primarily as a result of $54.9 million of restructuring and asset
impairment charges recorded during fiscal 2001. The recoverability of the net deferred tax
asset is primarily dependent upon the Company generating sufficient taxable income in the
future which, if achieved, will reduce cash required for payment of federal and state
income taxes. Although realization of the net deferred tax asset is not assured, we
believe it is more likely than not that the Company will generate sufficient taxable
income in the future to realize the full amount of the deferred tax asset. Our assessment
is based on projections that assume that the Company can maintain its current store
contribution margin. Furthermore, we expect to maintain the sales growth experienced over
the past five years that would generate additional taxable income. The primary uncertainty
related to the realization of the deferred tax asset is the Companys ability to
achieve its four-year business plan and generate future taxable income to realize the full
amount of the deferred tax asset. We believe that the sales, gross margin, store
contribution margin, and selling, general and administrative expenses assumptions in our
four-year business plan are reasonable and, more likely than not, attainable. We will
continue to assess the recoverability of the net deferred tax asset and to the extent it
is determined in the future that a valuation allowance is required, it will be recognized
as a charge to earnings at that time.

Credit Facility. Our credit facility has a $75.0 million limit,
which we believe to be adequate for our current borrowing needs, with a three-year term
maturing February 2006, with a one-year renewal option. Under the facility, we have the
option to increase the total facility to $135.0 million through the addition of new
lenders and through the agreement of the current lending group to increase their total
commitments. Outstanding borrowings under the facility were approximately $39.9 million as
of June 28, 2003.

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



21

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Capital Expenditures. We spent approximately $6.9 million during
the second quarter and $13.5 million during the first six months of fiscal 2003 for new
store construction, remodels and other capital expenditures. Our average capital
expenditures to open a leased store, including leasehold improvements, equipment and
fixtures, have ranged from approximately $2.0 million to $5.0 million historically,
excluding inventory costs and initial operating losses. We anticipate that the average
capital expenditures to open a natural foods supermarket format store will be $2.5 million
to $3.0 million in the future; however, our ability to negotiate turnkey leases in the
future will result in substantially lower capital expenditure per store, in return for a
slightly higher rent rate over the lease term. Our average capital expenditures to open a
farmers market format store are estimated at $1.5 million to $2.0 million in the future.
Delays in opening new stores may result in increased capital expenditures and increased
pre-opening costs for the site, as well as lower than planned sales for the Company.



Cautionary Statement Regarding Forward-Looking Statements

This Report on Form 10-Q contains "forward-looking
statements," within the meaning of the Private Securities Litigation Reform Act of
1995, which involve known and unknown risks. Such forward-looking statements include
statements as to the Company's plans to open, acquire or relocate additional stores; the
anticipated performance of such stores; the impact of competition and current economic
uncertainty; the sufficiency of funds to satisfy the Company's cash requirements through
the remainder of fiscal 2003, our expectations for comparable store sales; the impact of
changes resulting from our merchandising, advertising and pricing programs; 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.

The Company's exposure to interest rate changes is primarily related to
its variable rate debt issued under its credit facility. On February 26, 2003, the Company
refinanced the credit facility and reduced the total commitment available to a $75.0
million revolving line of credit, with a three-year term expiring February 25, 2006. The
interest rate on the amended facility is currently either prime plus 1.0% or one-month
LIBOR plus 2.25%, at our election, and the rates modify depending on the ratio of average
total funded debt, as defined under the credit facility, plus six times rent expense, to
EBITDAR for the four fiscal quarter periods then ended, as calculated on our quarterly
compliance certificate. Because the interest rate on the facility is variable, based upon
the prime rate or LIBOR, the Company's interest expense and net income are affected by
interest rate fluctuations. If interest rates were to increase or decrease by 100 basis
points, the result, based upon the existing outstanding non-hedged variable rate debt as
of June 28, 2003, would be an annual increase or decrease of approximately $99,000 in
interest expense and a corresponding decrease or increase of approximately $60,000 in the
Companys net income after taxes.



22

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In September 2000, as required by the Companys former credit
facility, the Company entered into an interest rate swap to hedge its exposure on variable
rate debt positions. Variable rates are predominantly linked to LIBOR as determined by
one-month intervals. The interest rate provided by the swap fixed one-month LIBOR at 6.7%.
At June 28, 2003, the notional principal amount of the interest rate swap agreement was
$30.0 million, expiring 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. In the second quarter of fiscal 2003, the loss, net of taxes,
included in other comprehensive income for this cash flow hedge was approximately
$256,000.



Item 4. Controls and Procedures

We maintain a system of controls and procedures designed to provide
reasonable assurance as to the reliability of the financial statements and other
disclosures included in this report, as well as to safeguard assets from unauthorized use
or disposition. We evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as defined in Exchange Act Rule 13a14 under
supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, as of June 28, 2003. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures are effective in timely alerting them to material information required to
be included in our periodic Securities and Exchange Commission filings. No significant
changes were made to our internal controls or other factors that could significantly
affect these controls subsequent to the date of their evaluation. The design of any future
system of controls and procedures is based in part upon certain assumptions about the
likelihood of future events. There can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions regardless of how remote.



23

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Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings

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



Item
2.  Changes in Securities and Use of Proceeds

None.



Item
3.  Defaults Upon Senior Securities

None.



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

At the Companys Annual Meeting of Stockholders, held on May 5, 2003, the
Companys stockholders elected each of the following directors, and the
Companys Board of Directors for a three-year term:David Chamberlain, Perry
Odak and Mark Retzloff. The following number of votes elected the directors



|Director          | For        | Withheld 
|----------------- | ---------- | ---------
|David Chamberlain | 23,528,284 | 2,293,307
|Perry Odak        | 22,113,964 | 3,707,627
|Mark Retzloff     | 22,189,284 | 3,632,307

The remaining directors whose terms continue after the meeting date are John Shields,
Brian Devine, David Gallitano, James McElwee and Stacey Bell. One additional director,
Ann-Marie Austin-Stephens, was elected by the Board to fill a newly created Board seat in
May 2003.

The Companys stockholders ratified the selection of
PricewaterhouseCoopers LLP as independent accountants for the Company for its fiscal year
ended December 27, 2003. The shareholders voted for the ratification by the following
number of votes:



For
    Against
    Abstain
    Broker Non-Votes25,043,910
    736,822
    50,859
    0




Item 5.  Other Information

The Audit Committee of the Board of Directors pre-approves all
non-audit services provided by the Companys independent accountants,
PricewaterhouseCoopers LLP. The aggregate fees billed for non-audit services rendered for
the second quarter of fiscal 2003 were $11,000 for tax services.



24

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Item 6.



|(a) |  | Exhibits. The following
    exhibits to this report filed on Form 10-Q are furnished as required by Item 601 of
    Regulation S-K:
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------
|    |  | Exhibit Number                                                                                                                     
|    |  |                                                                                                                                    
|    |  | 10.1#+                                                                                                                             
|    |  | 10.2#+                                                                                                                             
|    |  | 31.1+                                                                                                                              
|    |  | 31.2+                                                                                                                              
|    |  | 32.1+                                                                                                                              
|    |  | 32.2+                                                                                                                              

|(b) |  | Reports on Form 8-K. The
    Company filed the following report on Form 8-K during the quarterly period ended June 28,
    2003:
|--- |  | --------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                 
|    |  | (1)                                                                                                                             
|    |  | (2)                                                                                                                             

|__________________________________ | 
|---------------------------------- | 

| | # | Management Compensation Plan.
| | - | -----------------------------
| | + | Included herewith.           







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TABLE OF CONTENTS



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boulder, County of Boulder, State of Colorado,
on the 11th day of August 2003.

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







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