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 **MARCH 29, 2003**            
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                  
| |       | OR                                                                                                                                                               
| |       |                                                                                                                                                                  
| | (   ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM 
    __________ TO __________





Commission file number 0-21577



WILD OATS MARKETS, INC.

(Exact name of registrant as specified in its charter)

| | Delaware(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 May 1, 2003, there were 29,744,305 shares outstanding of the Registrant's Common
Stock (par value $.001 per share).



---





TABLE OF CONTENTS

|PART I.                       |  | FINANCIAL INFORMATION                                                                                                          |   
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ | --
|                              |  |                                                                                                                                |   
|Item 1.                       |  | Financial Statements:                                                                                                          |   
|                              |  |                                                                                                                                |   
|                              |  | Consolidated Balance Sheets,
      March 29, 2003 (unaudited) and 
      December 28, 2002                                     | 3 
|                              |  |                                                                                                                                |   
|                              |  | Consolidated Statements
      of Operations (unaudited), Three Months 
      Ended March 29, 2003 and March 30, 2002           | 4 
|                              |  |                                                                                                                                |   
|                              |  | Consolidated
      Statements of Comprehensive Income (unaudited), 
      Three Months Ended March 29, 2003 and March 30, 2002 | 5 
|                              |  |                                                                                                                                |   
|                              |  | Consolidated Statements
      of Cash Flows (unaudited), Three Months Ended March 29, 2003 and March 30, 2002                  | 6 
|                              |  |                                                                                                                                |   
|                              |  | Notes to
      Consolidated Financial Statements (unaudited)                                                                   | 7 
|                              |  |                                                                                                                                |   
|Item 2.                       |  | Management's
      Discussion and Analysis of Financial Condition and Results of Operations                                    | 13
|                              |  |                                                                                                                                |   
|Item 3.                       |  | Quantitative
      and Qualitative Disclosures About Market Risk                                                               | 19
|                              |  |                                                                                                                                |   
|Item 4.                       |  | Controls and Procedures                                                                                                        | 20
|                              |  |                                                                                                                                |   
|                              |  |                                                                                                                                |   
|PART II.                      |  | OTHER
      INFORMATION                                                                                                        |   
|                              |  |                                                                                                                                |   
|Item 1.                       |  | Legal Proceedings                                                                                                              | 21
|                              |  |                                                                                                                                |   
|Item 2.                       |  | Changes
      in Securities                                                                                                    | 21
|                              |  |                                                                                                                                |   
|Item 3.                       |  | Defaults
      Upon Senior Securities                                                                                          | 21
|                              |  |                                                                                                                                |   
|Item 4.                       |  | Submission
      of Matters to a Vote of Security Holders                                                                      | 21
|                              |  |                                                                                                                                |   
|Item 5.                       |  | Other Information                                                                                                              | 21
|                              |  |                                                                                                                                |   
|Item 6.                       |  | Exhibits
      and Reports on Form 8-K                                                                                         | 21
|                              |  |                                                                                                                                |   
|                              |  |                                                                                                                                |   
|SIGNATURES AND CERTIFICATIONS | 
|                              |  |                                                                                                                                |   
|                              |  | Signatures                                                                                                                     | 22
|                              |  |                                                                                                                                |   
|                              |  | Certifications in Accordance with
      Section 302 of the Sarbanes-Oxley 
      Act of 2002                                   | 23
|                              |  |                                                                                                                                |   
|                              |  | Certifications in Accordance with
      Section 906 of the Sarbanes-Oxley 
      Act of 2002                                   | 24



---



PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements



WILD OATS MARKETS, INC.

Consolidated Balance Sheets

(in thousands, except share data)



|                                         |                                       |                                                         |                                                  |                           | March 29,
    2003(unaudited) |                                | December 28,
    2002    
|---------------------------------------- | ------------------------------------- | ------------------------------------------------------- | ------------------------------------------------ | ------------------------- | ----------------------------- | ------------------------------ | -------------------------
|                                         |                                       |                                                         |                                                  |                           |                               |                                |                          
|                                         |                                       |                                                         |                                                  |                           |                               |                                |                          
|ASSETS                                   |                                       |                                                         |                                                  |                          
|                                         |                                       |                                                         |                                                  |                           |                              
|                                         | Current assets:                       |                                                         |                                                  |                           |                              
|                                         |                                       | Cash and cash
    equivalents                           |                                                  | $
                10,652  |                               | $
                 
    11,367
|                                         |                                       | Inventories                                             |                                                  | 49,159                    |                               | 47,175                        
|                                         |                                       | Accounts receivable                                     |                                                  | 3,933                     |                               | 2,524                         
|                                         |                                       | Income tax receivable                                   |                                                  | 240                       |                               | 250                           
|                                         |                                       | Prepaid expenses and
    other current assets           |                                                  | 2,455                     |                               | 2,163                         
|                                         |                                       | Deferred tax asset                                      |                                                  | 4,081                     |                               | 4,656                         
|                                         |                                       |                                                         |                                                  |                           |                               |                               
|                                         |                                       |                                                         | Total current assets                             |                           | 70,520                        |                                | 68,135                   
|                                         |                                       |                                                         |                                                  |                           |                               |                                |                          
|                                         | Property and
    equipment, net       |                                                         | 122,230                                          |                           | 122,359                      
|                                         | Goodwill, net                         |                                                         | 106,404                                          |                           | 106,404                      
|                                         | Other intangible
    assets, net      |                                                         | 7,307                                            |                           | 7,415                        
|                                         | Deposits and other
    assets         |                                                         | 3,985                                            |                           | 3,622                        
|                                         | Deferred tax asset                    |                                                         | 15,223                                           |                           | 15,650                       
|                                         |                                       |                                                         |                                                  |                           |                              
|                                         |                                       |                                                         |                                                  |                           | $
              325,669       |                                | $
              323,585  
|                                         |                                       |                                                         |                                                  |                          
|LIABILITIES AND
    STOCKHOLDERS' EQUITY |                                       |                                                         |                                                  |                          
|                                         |                                       |                                                         |                                                  |                           |                              
|                                         | Current liabilities:                  |                                                         |                                                  |                           |                              
|                                         |                                       | Accounts payable                                        |                                                  | $
                 39,333 |                               | $
                 34,819     
|                                         |                                       | Book overdraft                                          |                                                  | 23,540                    |                               | 22,777                        
|                                         |                                       | Accrued liabilities                                     |                                                  | 38,560                    |                               | 37,943                        
|                                         |                                       | Current portion of
    debt and capital leases          |                                                  | 16                        |                               | 146                           
|                                         |                                       |                                                         |                                                  |                           |                               |                               
|                                         |                                       |                                                         | Total current liabilities                        |                           | 101,449                       |                                | 95,685                   
|                                         |                                       |                                                         |                                                  |                           |                               |                                |                          
|                                         | Long-term debt and
    capital leases |                                                         | 38,890                                           |                           | 43,075                       
|                                         | Other long-term
    obligations       |                                                         | 15,945                                           |                           | 17,923                       
|                                         |                                       |                                                         |                                                  |                           |                              
|                                         |                                       |                                                         |                                                  |                           | 156,284                       |                                | 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; 29,716,958 and
    29,658,660 shares |                           |                               |                                |                          
|                                         |                                       |                                                         | issued and outstanding,
    respectively         |                           | 30                            |                                | 30                       
|                                         |                                       | Additional paid-in
    capital                          |                                                  | 214,196                   |                               | 213,482                       
|                                         |                                       | Note receivable,
    related party                      |                                                  | (10,340)                  |                               | (10,200)                      
|                                         |                                       | Accumulated deficit                                     |                                                  | (33,928)                  |                               | (35,368)                      
|                                         |                                       | Accumulated other
    comprehensive loss                |                                                  | (573)                     |                               | (1,042)                       
|                                         |                                       |                                                         |                                                  |                           |                               |                               
|                                         |                                       |                                                         |                                                  |                           |                               |                               
|                                         |                                       |                                                         | Total stockholders' equity                       |                           | 169,385                       |                                | 166,902                  
|                                         |                                       |                                                         |                                                  |                           |                               |                                |                          
|                                         |                                       |                                                         |                                                  |                           | $
                325,669     |                                | $
                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         
|----------------------------------------------------------------- | ------------------------------------------------ | ------------------------------ | ------------------------------- | ------------------------------ | -------------------------------
|                                                                  |                                                  |                                |                                 |                                | March
    29,
    2003         
|                                                                  |                                                  |                                |                                 |                                |                                
|                                                                  |                                                  |                                |                                 |                                |                                
|                                                                  |                                                  |                                |                                 |                                |                                
|Sales                                                             |                                                  | $
               235,987       |                                 | $
               233,013      
|Cost of goods sold and
    occupancy costs                        |                                                  | 165,128                        |                                 | 165,370                       
|                                                                  |                                                  |                                |                                 |                               
|Gross profit                                                      |                                                  | 70,859                         |                                 | 67,643                        
|Operating expenses:                                               |                                                  |                                |                                 |                               
|                                                                  | Direct store expenses                            |                                | 50,864                          |                                | 50,469                         
|                                                                  | Loss (gain) on
    disposal of assets            |                                | 1,468                           |                                | (57)                           
|                                                                  | Selling, general and
    administrative expenses |                                | 15,977                          |                                | 14,174                         
|                                                                  | Pre-opening expenses                             |                                | 922                             |                                | 368                            
|                                                                  | Restructuring and
    asset impairment income    |                                | (1,736)                         |                                | (652)                          
|                                                                  |                                                  |                                |                                 |                                |                                
|                                                                  |                                                  | Income from operations         |                                 | 3,364                          |                                
|                                                                  | Interest income                                  |                                | (176)                           |                                | (180)                          
|                                                                  | Interest expense                                 |                                | 993                             |                                | 2,435                          
|                                                                  | Loss on early
    extinguishment of debt         |                                | 186                             |                                |                                
|                                                                  |                                                  |                                |                                 |                                |                                
|                                                                  |                                                  | Income before income
    taxes |                                 | 2,361                          |                                
|                                                                  | Income tax expense                               |                                | 921                             |                                | 418                            
|                                                                  |                                                  |                                |                                 |                                |                                
|Net income                                                        |                                                  | $
                  
    1,440 |                                 | $
                    
    668
|                                                                  |                                                  |                                |                                 |                               
|Net income per common
    share:                                  |                                                  |                                |                                 |                               
|                                                                  | Basic                                            |                                | $
                    
    0.05 |                                | $
                    
    0.03
|                                                                  | Diluted                                          |                                | $
                    
    0.05 |                                | $
                    
    0.03
|                                                                  |                                                  |                                |                                 |                               
|Weighted average
    common shares outstanding, basic             |                                                  | 29,704                         |                                 | 24,823                        
|Dilutive effect of
    stock options                              |                                                  | 212                            |                                 | 278                           
|                                                                  |                                                  |                                |                                 |                               
|Weighted average
    common shares outstanding, assuming dilution |                                                  | 29,916                         |                                 | 25,101                        
|                                                                  |                                                  |                                |                                 |                               



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

4

---



WILD OATS MARKETS, INC.

Consolidated
Statements of Comprehensive Income

(in thousands) (unaudited)



|                                       |                                                      |                                                         |  |                                 | THREE MONTHS
    ENDED
|-------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------- |  | ------------------------------- | ----------------------
|                                       |                                                      |                                                         |  |                                 | March 29,
    2003    
|                                       |                                                      |                                                         |  |                                 |                       
|                                       |                                                      |                                                         |  |                                 |                       
|                                       |                                                      |                                                         |  |                                 |                       
|Net income                             |                                                      | $
                  
    1,440                          |  | $
                     
    668
|                                       |                                                      |                                                         |  |                                 |                       
|Other comprehensive
    income (loss): |                                                      |                                                         |  |                                
|                                       | Foreign currency
    translation adjustments arising |                                                         |  |                                 |                       
|                                       |                                                      | during the period                                       |  | 218                             |                       
|                                       | Recognition of hedge
    results to interest expense |                                                         |  |                                 |                       
|                                       |                                                      | during the period, net
    of tax of $163 and $188,     |  |                                 |                       
|                                       |                                                      | respectively                                            |  | 272                             |                       
|                                       | Change in market value
    of cash flow hedge during |                                                         |  |                                 |                       
|                                       |                                                      | the period, net of tax
    of $13 and $27, respectively |  | (21)                            |                       
|                                       |                                                      |                                                         |  |                                 |                       
|Other comprehensive
    income         |                                                      | 469                                                     |  | 268                            
|                                       |                                                      |                                                         |  |                                 |                       
|Comprehensive income                   |                                                      | $
                  
    1,909                          |  | $
                     
    936
|                                       |                                                      |                                                         |  |                                





5

---

WILD OATS MARKETS, INC.

Consolidated Statements
of Cash Flows

(in thousands) (unaudited)



|                                                     |                                                                    |                                                                |                                           |                                | THREE MONTHS
    ENDED          
|---------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------- | ----------------------------------------- | ------------------------------ | --------------------------------
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|                                                     |                                                                    |                                                                |                                           |                                | March 29,
    2003              
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|CASH FLOWS FROM OPERATING
    ACTIVITIES             |                                                                    |                                                                |                                           |                               
|                                                     | Net income                                                         |                                                                | $
                   
    1,440           |                                | $
                      
    668
|                                                     | Adjustments to reconcile net
    income to net cash from           |                                                                |                                           |                                |                                 
|                                                     | operating
    activities:                                          |                                                                |                                           |                                |                                 
|                                                     |                                                                    | Depreciation and amortization                                  |                                           | 5,570                          |                                 
|                                                     |                                                                    | Loss (gain) on disposal of
    property and equipment          |                                           | 1,468                          |                                 
|                                                     |                                                                    | Deferred tax expense                                           |                                           | 873                            |                                 
|                                                     |                                                                    | Income tax benefit from employee
    exercise of stock options | 12                                        |                                | 2                               
|                                                     |                                                                    | Restructuring and asset impairment
    income                  |                                           | (1,736)                        |                                 
|                                                     |                                                                    | Loss on early extinguishment of
    long-term debt             |                                           | 186                            |                                 
|                                                     |                                                                    | Other                                                          |                                           | 77                             |                                 
|                                                     | Change in assets and liabilities:                                  |                                                                |                                           |                                |                                 
|                                                     |                                                                    | Inventories, net                                               |                                           | (1,921)                        |                                 
|                                                     |                                                                    | Receivables, net, and other assets                             |                                           | (1,591)                        |                                 
|                                                     |                                                                    | Accounts payable                                               |                                           | 5,252                          |                                 
|                                                     |                                                                    | Accrued liabilities                                            |                                           | 855                            |                                 
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|                                                     |                                                                    |                                                                | Net cash provided by operating activities |                                | 10,485                          
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|CASH FLOWS FROM INVESTING
    ACTIVITIES             |                                                                    |                                                                |                                           |                               
|                                                     | Capital expenditures                                               |                                                                | (6,621)                                   |                                | (2,713)                         
|                                                     | Proceeds from sale of property and
    equipment                   |                                                                |                                           |                                | 2                               
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|                                                     |                                                                    |                                                                | Net cash used in investing activities     |                                | (6,621)                         
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|CASH FLOWS FROM FINANCING
    ACTIVITIES             |                                                                    |                                                                |                                           |                               
|                                                     | Net repayments under
    line-of-credit agreement                  |                                                                | (5,100)                                   |                                | (13,000)                        
|                                                     | Repayments on notes payable,
    long-term debt and capital leases |                                                                | (37,094)                                  |                                | (3,150)                         
|                                                     | Proceeds from long-term debt                                       |                                                                | 37,879                                    |                                |                                 
|                                                     | Payment of debt issuance costs                                     |                                                                | (721)                                     |                                |                                 
|                                                     | Proceeds from issuance of common
    stock                         |                                                                | 485                                       |                                | 563                             
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|                                                     |                                                                    |                                                                | Net cash used in financing activities     |                                | (4,551)                         
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|Effect of exchange rate changes on
    cash          |                                                                    | (28)                                                           |                                           |                               
|                                                     |                                                                    |                                                                |                                           |                               
|Net decrease in cash and cash
    equivalents        |                                                                    | (715)                                                          |                                           | (4,605)                       
|Cash and cash equivalents at
    beginning of period |                                                                    | 11,367                                                         |                                           | 18,840                        
|                                                     |                                                                    |                                                                |                                           |                               
|Cash and cash equivalents at end
    of period       |                                                                    | $
                 
    10,652                                 |                                           | $
                 
    14,235
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|NON-CASH INVESTING AND
    FINANCING ACTIVITIES      |                                                                    |                                                                |                                           |                               
|                                                     | Stock issued in payment of note
    payable                        |                                                                |                                           |                                | $
                   
    1,000 
|                                                     |                                                                    |                                                                |                                           |                                |                                 
|                                                     | Settlement of note payable against
    accounts receivable         |                                                                |                                           |                                | $
                      
    200
|                                                     |                                                                    |                                                                |                                           |                                |                                 



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

6

---



WILD OATS MARKETS, INC.

Notes to
Consolidated Financial Statements

(unaudited)



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

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

The consolidated balance sheet as of March 29, 2003, the consolidated
statements of operations and comprehensive income for the three months ended March 29,
2003 and March 30, 2002, as well as the consolidated statements of cash flows for the
three months ended March 29, 2003 and March 30, 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.

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



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

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

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

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 March 29, 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.

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 historical financial results.

During the second 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 operating net income.



|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.



|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.

At March 29, 2003, the Company has six stock-based employee
compensation plans, 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. The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations. Some stock-based employee compensation cost is reflected in net
income for options issued at a discount as Board of Directors compensation. All other
options granted under the plans had an exercise price equal to the market value of the
underlying common stock on the date of grant; therefore, no other employee compensation
cost is reflected in net income.



8

---

The following table illustrates the effect on net income 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          
|-------------------------------------------------------------- | ------------------------------------------------------------ | -------------------------------- | -------------------------------- | -------------------------------- | --------------------------------
|                                                               |                                                              |                                  |                                  |                                  |                                 
|                                                               |                                                              |                                  |                                  |                                  | March 29, 2003                  
|                                                               |                                                              |                                  |                                  |                                  |                                 
|Net income, as reported                                        |                                                              | $
                   
    1,440  |                                  | $
                      
    668
|Add: Stock-based employee
    compensation expense included in |                                                              |                                  |                                  |                                 
|                                                               | reported net income, net of tax                              |                                  | 132                              |                                  | 14                              
|Deduct: Total stock-based employee
    compensation expense    |                                                              |                                  |                                  |                                 
|                                                               | determined under fair value based
    method for all awards, |                                  |                                  |                                  |                                 
|                                                               | net of tax                                                   |                                  | (638)                            |                                  | (485)                           
|                                                               |                                                              |                                  |                                  |                                  |                                 
|Pro forma net income                                           |                                                              | $
                      
    934 |                                  | $
                      
    197
|                                                               |                                                              |                                  |                                  |                                  |                                 
|Earnings per share:                                            |                                                              |                                  |                                  |                                 
|                                                               | Basic - as reported                                          |                                  | $
                     
    0.05 |                                  | $
                     
    0.03
|                                                               |                                                              |                                  |                                  |                                  |                                 
|                                                               | Basic - pro forma                                            |                                  | $
                     
    0.03 |                                  | $
                     
    0.01
|                                                               |                                                              |                                  |                                  |                                  |                                 
|                                                               | Diluted - as reported                                        |                                  | $
                    
    0.05  |                                  | $
                    
    0.03 
|                                                               |                                                              |                                  |                                  |                                  |                                 
|                                                               | Diluted - pro forma                                          |                                  | $
                     
    0.03 |                                  | $
                     
    0.01
|                                                               |                                                              |                                  |                                  |                                  |                                 





|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.



|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 cash, equipment and fixtures, inventory and other assets. The
Company has also granted a leasehold mortgage in those leasehold interests previously
mortgaged to secure our 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 our 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 March 29,
2003 was ($547,000), 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 antidilutive (i.e., in a loss period).
Antidilutive stock options of 2,113,188 and 1,568,007 for the three months ended March 29,
2003 and March 30, 2002, respectively, were not included in the earnings per share
calculations.



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

During the first 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.



9

---

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

| |  |                                           |  |                                | March 29,
    2003 |                                | December 28,
    2002
| |  | ----------------------------------------- |  | ------------------------------ | ------------------ | ------------------------------ | ---------------------
| |  |                                           |  |                                |                   
| |  |                                           |  |                               
| |  | Leasehold interests                       |  | $
                  
    9,035 |                    | $
                  
    9,035
| |  | Liquor licenses and other
    intangibles |  | 116                            |                    | 104                           
| |  |                                           |  |                                |                    |                               
| |  |                                           |  | 9,151                          |                    | 9,139                         
| |  | Less accumulated amortization             |  | (1,844)                        |                    | (1,724)                       
| |  |                                           |  |                                |                    |                               
| |  |                                           |  | $
                  
    7,307 |                    | $
                  
    7,415
| |  |                                           |  |                                |                    |                               

Amortization expense related to finite lived intangible assets was
$120,000 and $118,000 for the three months ended March 29, 2003 and March 30, 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             |  | $ 479                    | 
| | 2004             |  | $ 482                    | 
| | 2005             |  | $ 482                    | 
| | 2006             |  | $ 466                    | 
| | 2007             |  | $ 462                    | 



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

During the first quarter of fiscal 2003, the Company recorded
restructuring income of $1.7 million 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 |                 | $ (0.4 million)
| |                                                                       |                                                                 |                 |                
| | Change in
    estimate related to lease-related liabilities for sites |                                                                 |                 |                
| |                                                                       | previously identified for
    closure or sale                   |                 | (1.3 million)  
| |                                                                       |                                                                 |                 |                
| | Total
    restructuring income                                        |                                                                 | $ (1.7 million) |                
| |                                                                       |                                                                 |                 |                



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 ($0.4 million of restructuring income)



10

---

- Change in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1.3 million of restructuring income)

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

|EXIT
    PLANS |  | 1999
    AND
    PRIOR |  | Q2
    2000 |  | Q4
    2000 |  | Q2
    2001 |  | Q4
    2001 |  | Q4
    2002 |  | TOTAL   
|-------------- |  | ---------------------- |  | ----------- |  | ----------- |  | ----------- |  | ----------- |  | ----------- |  | --------
|               |  |                        |  |             |  |             |  |             |  |             |  |             |  |         
|Balance,       |  |                        |  |             |  |             |  |             |  |             |  |             |  |         
|12/28/02       |  | $ 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)     
|               |  |                        |  |             |  |             |  |             |  |             |  |             |  |         
|Cash paid -    |  |                        |  |             |  |             |  |             |  |             |  |             |  |         
|Lease-         |  |                        |  |             |  |             |  |             |  |             |  |             |  |         
|related        |  |                        |  |             |  |             |  |             |  |             |  |             |  |         
|liabilities    |  | (133)                  |  | (73)        |  | (170)       |  | (494)       |  | (133)       |  |             |  | (1,003) 
|               |  |                        |  |             |  |             |  |             |  |             |  |             |  |         
|Balance,       |  | 1                      |  | 1           |  | 1           |  | 1           |  | 1           |  | 1           |  |         
|03/29/03       |  | $ 2,303                |  | $ 839       |  | $ 1,951     |  | $ 4,836     |  | $ 1,843     |  | $ 3,552     |  | $ 15,324
|               |  |                        |  |             |  |             |  |             |  |             |  |             |  |         

|1 | The restructuring accrual balance consists
    of lease-related liabilities.
|- | ----------------------------------------------------------------------------



As of March 29, 2003, the components of the accruals related to the Company's
restructuring activities are accrued liabilities ($4.0 million) and other long-term
obligations ($11.3 million).



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

The Company has a $19.3 million net deferred tax asset, primarily as a
result of the $54.9 million of restructuring and asset impairment charges recorded during
fiscal 2001. For the three months ended March 29, 2003, the Company recorded $921,000 of
income tax expense, as a result of income before income taxes of $2.4 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.



11

---

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

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

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.



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

During the normal course of its business, the Company has made 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.



12

---

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 programs and controls designed to
promote steady growth in value to our stakeholders, including but not limited to:

- centralized buying and pricing
- centralized scale hosting
- centralized back door replenishment
- sku rationalization and new item introductions
- validated asset tracking
- resetting, remerchandising and remodeling our stores
- increased staff training and product demonstrations

We have begun executing on our real estate strategy, and to the date of
this report have signed leases or letters of intent for 27 proposed new sites opening in
fiscal 2003 and fiscal 2004. In the first quarter of fiscal 2003 and continuing to the
date of filing this report on Form 10-Q, we signed 10 new leases; five of which are for
stores proposed to open during fiscal 2003, with the remaining five leases for stores
scheduled to open in fiscal 2004.

In the first quarter of fiscal 2003, we were named 19th in a
list of the 100 best corporate citizens for 2002 in the United States by Business Ethics
Magazine.

Store format. 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 and
Nature's

Store openings, closings and remodels. At March 29, 2003, we had
102 stores located in 25 states and Canada, as compared to 102 stores in 23 states and
Canada at the end of the first quarter of fiscal 2002. In the first quarter of fiscal
2003, we opened three new stores in Costa Mesa, California, Louisville, Kentucky and
Portland, Maine. Subsequent to the first quarter of fiscal 2003, we closed one
underperforming store in Los Angeles, California. In fiscal 2003, we have commenced major
remodeling and/or major resetting of seven of our stores, four of which were completed in
the first quarter of fiscal 2003.

We currently have an inventory of 12 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 first quarter of fiscal 2003, we terminated one
lease for a vacant site and added excess space adjacent to a new store to the inventory of
vacant sites. Subsequent to the first quarter of fiscal 2003, we negotiated the
termination of two leases for vacant sites, and added one closed store. We are actively
seeking subtenants or assignees for the spaces, although many of the sites are difficult
to sublease or assign because of unusual site characteristics, surpluses of vacant retail
space in the markets in which the sites are located, or because the remaining lease terms
are relatively short.



13

---

In February of 2003, we completed a refinancing of $75.0 million under
our existing credit facility with a group of banks led by the lead bank in our former
credit facility. The funds available under the credit facility will be used to finance
proposed growth of nine to 13 new stores in fiscal 2003, up to 15 to 20 stores in fiscal
2004 and up to 20 to 25 stores in fiscal 2005. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and Capital
Resources."

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 are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates. See our fiscal 2002 Annual Report filed on Form 10-K for the
period ended December 28, 2002, for 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 first quarter of fiscal 2003.



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
| |  | ------------------------------------------------ |  | ------ | ----------------------
| |  |                                                  |  |        |                       
| |  |                                                  |  |        | March 29,
    2003    
| |  |                                                  |  |        |                       
| |  | Sales                                            |  | 100.0% |                       
| |  | Cost of goods sold and
    occupancy costs       |  | 70.0   |                       
| |  |                                                  |  |        |                       
| |  | Gross margin                                     |  | 30.0   |                       
| |  | Direct store expenses                            |  | 21.6   |                       
| |  | Loss (gain) on
    disposal of assets            |  | 0.6    |                       
| |  | Selling, general and
    administrative expenses |  | 6.8    |                       
| |  | Pre-opening expenses                             |  | 0.3    |                       
| |  | Restructuring and
    asset impairment charges   |  | (0.7)  |                       
| |  |                                                  |  |        |                       
| |  | Income from operations                           |  | 1.4    |                       
| |  | Interest income                                  |  | (0.1)  |                       
| |  | Interest expense                                 |  | 0.4    |                       
| |  | Loss on early
    extinguishment of debt         |  | 0.1    |                       
| |  |                                                  |  |        |                       
| |  | Income before income
    taxes                   |  | 1.0    |                       
| |  | Income tax expense                               |  | 0.4    |                       
| |  |                                                  |  |        |                       
| |  | Net income                                       |  | 0.6%   |                       
| |  |                                                  |  |        |                       



Sales. Sales for the three months ended March 29, 2003, increased
1.3% to $236.0 million from $233.0 million in the same period in fiscal 2002. The
year-to-date increase was primarily attributed to four new store openings. Comparable
store sales were negative 0.9% for the first quarter of fiscal 2003, as compared to a
positive 7.3% in the first quarter of fiscal 2002, due to continued disruptions in
operations resulting from our SKU rationalization program, distributor transition, and
out-of-stocks in private label products as we phase into a new private label program, as
well as a continued weakening in the economy, a shift of the Easter holiday from the first
quarter of fiscal 2002 to the second quarter of fiscal 2003, adverse weather conditions,
including a record-setting blizzard affecting more than 10% of our store base that
contribute over 20% of our total sales, and road construction adjacent to a number of our
stores.



14

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Gross Profit. Gross profit for the three months ended March 29,
2003 increased 4.8% to $70.9 million from $67.6 million in the same period in fiscal 2002.
As a percentage of sales, gross profit increased to 30.0% in the first quarter of fiscal
2003 from 29.0% in the same period in fiscal 2002 due primarily to price optimization,
improved procurement and shrink reduction strategies.

Direct Store Expenses. Direct store expenses for the three months
ended March 29, 2003 increased 0.8% to $50.9 million from $50.5 million in the same period
in fiscal 2002. As a percentage of sales, direct store expenses remained constant at 21.6%
in the first quarter of fiscal 2003 compared to 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 three
months ended March 29, 2003 increased to a $1.5 million loss from a $57,000 gain in the
same period in fiscal 2002.  As a result of the significant store closings, remodels
and resets, we undertook a physical inventory of all fixtures and equipment in our stores,
in conjunction with an asset tagging exercise.  During the first quarter of fiscal
2003, we substantially completed the physical inventory 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 March 29, 2003 increased 12.7% to $16.0
million from $14.2 million in the same period in fiscal 2002. As a percentage of sales,
selling, general and administrative expenses increased to 6.8% in the first quarter of
fiscal 2003 from 6.1% in the same period in fiscal 2002. The increases are attributable to
the addition of employees and associated expenses as we prepare for future growth.

Pre-Opening Expenses. Pre-opening expenses for the three months
ended March 29, 2003, increased to $922,000 compared to $368,000 during the same period in
fiscal 2002. As a percentage of sales, pre-opening expenses increased to 0.3% in the first
quarter of fiscal 2003 from 0.1% in the same period in fiscal 2002, due to the opening of
three new stores in the first quarter of fiscal 2003 as compared to the anticipated
opening of one new store in the second quarter of fiscal 2002.

Restructuring and Asset Impairment Income. During the first quarter
of fiscal 2003, we recorded restructuring income of $1.7 million. 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 ($0.4 million of restructuring income) -
- Change in estimate related to lease-related liabilities for sites previously identified
    for closure or sale ($1.3 million of restructuring income)



15

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Interest Income. Interest income for the three months ended March
29, 2003 decreased 2.2% to $176,000 from $180,000 for the same period in fiscal 2002, as a
result of a lower level of daily invested funds.

Interest Expense. Interest expense for the three months ended March
29, 2003 decreased 59.2% to $1.0 million from $2.4 million in the same period in fiscal
2002, due to decreased borrowings during the three-month period. Due to the current state
of the U.S. economy, management believes 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 three months ended March 29, 2003 was $186,000 due to the refinancing of
the credit facility, which required the write-off of the unamortized debt costs associated
with the old facility.

Income Tax Expense. For the three months ended March 29, 2003, we
recorded $921,000 of income tax expense, as a result of income before income taxes of $2.4
million during the period. Our effective tax rate on income from continuing operations
will be in the range of 38.5% to 40.0% for fiscal 2003. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and
Capital Resources"below.



Liquidity and Capital Resources

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

Net cash provided by operating activities was $10.5 million during the
first three months of fiscal 2003 as compared to $13.7 million during the same period in
fiscal 2002. Cash from operating activities decreased during this period primarily due to
changes in working capital items, primarily inventory. 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 $6.6 million during the first
three months of fiscal 2003 as compared to $2.7 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 $4.6 million during the first
three months of fiscal 2003 as compared to $15.6 million during the same period in fiscal
2002. The decrease reflects lower debt repayments due to an increase in capital
expenditures and a decrease in cash flow from operations.

We have a net deferred tax asset of $19.3 million on our balance sheet,
primarily as a result of $54.9 million of restructuring and asset impairment charges
recorded during fiscal 2001. The net deferred tax asset will reduce cash required for
payment of federal and state income taxes, as we believe we will generate sufficient
taxable income for realization of the asset in the future. 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,
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.



16

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Refinancing of Credit Facility. On February 26, 2003, we completed
the refinancing of our credit facility with Wells Fargo Bank N.A., our former
administrative agent, again acting as lead bank and administrative agent. Our new facility
has a $75.0 million limit, which we believe to be adequate for our current borrowing
needs, with a three-year term with a one-year renewal option. Under the new 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 new facility were approximately $38.9
million as of March 29, 2003.

As part of the new facility, we have given our lenders collateral in
the form of cash, equipment and fixtures, inventory and other assets. We have also granted
leasehold mortgages in those leasehold interests previously mortgaged to secure our former
credit facility, although we have no obligation to provide an interest in any new
leaseholds. The new facility contains limitations on capital expenditures and the signing
of new leases, although we believe such limitations will not restrict our announced growth
plans of nine to 13 stores in fiscal 2003, up to 15 to 20 stores in fiscal 2004 and up to
20 to 25 stores in fiscal 2005. The interest rate on the facility is currently either
prime plus 1.0% or one-month LIBOR plus 2.25% at our election, and the rates modify
depending on the ratio of average total funded debt, as defined under the credit facility,
plus six times rent expense, to EBITDAR for the four fiscal quarter periods then ended, as
calculated on our quarterly compliance certificate. Additionally, we are charged a
commitment fee on the unused portion of the line ranging from 0.25% to 0.5% based on
performance objectives as defined in the credit agreement. We believe that cash generated
from operations and available under our credit facility will be sufficient to meet our
capital expenditure requirements in fiscal 2003.

Capital Expenditures. We spent approximately $6.6 million during
the first three months of fiscal 2003 for new store construction, development, remodels
and other capital expenditures, exclusive of acquisitions. 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.

The cost of initial inventory for a new store is approximately $300,000
to $600,000 depending on the store format; however, we obtain vendor financing for most of
this cost. Pre-opening costs for natural foods supermarket format stores currently are
between $400,000 and $500,000 per store, and pre-opening costs for farmers market format
stores are between $200,000 and $300,000, and are expensed as incurred. The amounts and
timing of such pre-opening costs will depend upon the availability of new store sites and
other factors, including the location of the store and whether it is in a new or existing
market for us, the size of the store, and the required build-out at the site.



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



17

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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.



18

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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 March 29, 2003, would be an annual increase or decrease of approximately $89,000 in
interest expense and a corresponding decrease or increase of approximately $54,000 in the
Company's net income after taxes.

In September 2000, as required by the Company's former credit facility,
the Company entered into an interest rate swap to hedge its exposure on variable rate debt
positions. Variable rates are predominantly linked to LIBOR as determined by one-month
intervals. The interest rate provided by the swap fixed one-month LIBOR at 6.7%. At March
29, 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 first quarter of fiscal 2003, the loss, net of taxes,
included in other comprehensive income for this cash flow hedge was approximately
$272,000.



19

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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 under supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, within 90
days prior to the filing date of this report. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information required to be
included in our periodic Securities and Exchange Commission filings. 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.



20

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Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings



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



Item
2.  Changes in Securities and Use of Proceeds

None.



Item
3.  Defaults Upon Senior Securities

None.



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

Not applicable.

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 first quarter of fiscal 2003 were $16,000, for tax services.



Item
6.  Exhibits and Reports on Form 8-K

| | (a) | Exhibits:           
| | --- | --------------------
| |     |                     
| |     |                     
| |     |                     
| |     |                     
| |     |                     
| | (b) | Reports on Form 8-K:
| |     |                     
| |     | (1)                 
| |     |                     
| |     | (2)                 
| |     |                     
| |     | (3)                 



21

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boulder, County of Boulder, State of Colorado,
on the 13th day of May, 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) 





---

CERTIFICATION OF CEO



|   | I, Perry D.
    Odak, Chief Executive Officer of Wild Oats Markets, Inc., certify that:                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|1. | I have reviewed
    this quarterly report on Form 10-Q of Wild Oats Markets, Inc. (the
    "Registrant");                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|2. | Based on my
    knowledge, this quarterly report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the statements made, in light of the
    circumstances under which such statements were made, not misleading with respect to the
    period covered by this quarterly report;                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|3. | Based on my
    knowledge, the financial statements, and other financial information included in this
    quarterly report, fairly present in all material respects the financial condition, results
    of operations and cash flows of the Registrant as of, and for, the periods presented in
    this quarterly report;                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|4. | The
    Registrant's other certifying officers and I are responsible for establishing and
    maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
    and 15d-14) for the Registrant and have:                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|5. | The
    Registrant's other certifying officers and I have disclosed, based on our most recent
    evaluation, to the Registrant's auditors and the audit committee of Registrant's board of
    directors (or persons performing the equivalent functions):                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|6. | The
    Registrant's other certifying officers and I have indicated in this quarterly report
    whether there were significant changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of our most recent
    evaluation, including any corrective actions with regard to significant deficiencies and
    material weaknesses.



|Date: May 13, 2003                         | 
|------------------------------------------ | 
|                                           | 
|                                           | 
|/s/ Perry D. Odak                          | 
|Perry D. Odak, Chief
    Executive Officer | 



23

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CERTIFICATION OF CFO



|   | I, Edward F.
    Dunlap, Chief Financial Officer of Wild Oats Markets, Inc., certify that:                                                                                                                                                                                                                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|1. | I have reviewed
    this quarterly report on Form 10-Q of Wild Oats Markets, Inc. (the
    "Registrant");                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|2. | Based on my
    knowledge, this quarterly report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the statements made, in light of the
    circumstances under which such statements were made, not misleading with respect to the
    period covered by this quarterly report;                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|3. | Based on my
    knowledge, the financial statements, and other financial information included in this
    quarterly report, fairly present in all material respects the financial condition, results
    of operations and cash flows of the Registrant as of, and for, the periods presented in
    this quarterly report;                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|4. | The
    Registrant's other certifying officers and I are responsible for establishing and
    maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
    and 15d-14) for the Registrant and have:                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|5. | The
    Registrant's other certifying officers and I have disclosed, based on our most recent
    evaluation, to the Registrant's auditors and the audit committee of Registrant's board of
    directors (or persons performing the equivalent functions):                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|6. | The
    Registrant's other certifying officers and I have indicated in this quarterly report
    whether there were significant changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of our most recent
    evaluation, including any corrective actions with regard to significant deficiencies and
    material weaknesses.



|Date: May 13, 2003                            | 
|--------------------------------------------- | 
|                                              | 
|                                              | 
|/s/ Edward F. Dunlap                          | 
|Edward F. Dunlap, Chief
    Financial Officer | 



24