<PAGE>
 
                                 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 APRIL 3, 1999
                                      OR

( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________________
     TO _______________________

Commission file number 0-21577

                            WILD OATS MARKETS, INC.
            (Exact name of registrant as specified in its charter)

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

                              3375 MITCHELL LANE
                         BOULDER, COLORADO 80301-2244
         (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  ( )

As of May 5, 1999, there were 13,185,190 shares outstanding of the Registrant's
Common Stock (par value $0.001 per share).
<PAGE>
 
                               TABLE OF CONTENTS

                                                                           PAGE
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
          
          Consolidated Balance Sheet
            April 3, 1999 (Unaudited) and January 2, 1999                     3
                                                                          
          Consolidated Statement of Operations (Unaudited)                
            Three Months Ended April 3, 1999 and March 28, 1998               4
                                                                          
          Consolidated Statement of Cash Flows (Unaudited)                
            Three Months Ended April 3, 1999 and March 28, 1998               5
                                                                          
          Notes to Consolidated Financial Statements (Unaudited)              6
                                                                          
Item 2.  Management's Discussion and Analysis of                         
            Financial Condition and Results of Operations                     7
                                                                          
Item 3.  Quantitative and Qualitative Disclosures                        
            About Market Risk                                                12
 
PART II. OTHER INFORMATION
 
Item 1.  Legal Proceedings                                                   14
Item 2.  Changes in Securities                                               14
Item 3.  Defaults Upon Senior Securities                                     14
Item 4.  Submission of Matters to a Vote of Security Holders                 14
Item 5.  Other Information                                                   14
Item 6.  Exhibits and Reports on Form 8-K                                    14
                                                                            
SIGNATURES                                                                   14

                                      2 
<PAGE>
 
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                            WILD OATS MARKETS, INC.
                          CONSOLIDATED BALANCE SHEET
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                    APRIL 3,    JANUARY 2,
                                                      1999        1999
                                                   (Unaudited)
<S>                                                <C>          <C>
Assets
Current assets:
  Cash and cash equivalents                          $  9,066     $ 11,255
  Accounts receivable (less allowance
     for doubtful accounts of $155 and
     $159, respectively)                                1,662        1,762
  Inventories                                          30,834       28,464
  Prepaid expenses and other current assets             1,159        1,956
  Deferred income taxes                                 1,539          812
                                                     --------     --------
     Total current assets                              44,260       44,249
                                                     --------     --------
Property and equipment, net                            97,585       97,878
Intangible assets, net                                 71,618       55,827
Deposits and other assets                               1,261          886
                                                     --------     --------
                                                     $214,724     $198,840
                                                     ========     ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                   $ 27,275     $ 29,022
  Accrued liabilities                                  13,223       12,432
  Notes payable                                                      3,150
                                                     --------     --------
     Total current liabilities                         40,498       44,604
Long-term debt                                         22,300
Deferred income taxes                                   2,016        1,958
Other liabilities                                       1,649        1,334
                                                     --------     --------
                                                       66,463       47,896
                                                     --------     --------
 
Stockholders' equity:
  Preferred stock, $0.001 par value; 5,000,000
     shares authorized; no shares
     issued and outstanding
  Common stock, $0.001 par value; 20,000,000
     shares authorized; 13,103,675 and
     13,077,884 shares issued and outstanding              13           13
  Additional paid-in capital                          141,228      140,778
  Retained earnings                                     6,964       10,262
  Accumulated other comprehensive income (loss)            56         (109)
                                                     --------     --------
     Total stockholders' equity                       148,261      150,944
                                                     --------     --------
                                                     $214,724     $198,840
                                                     ========     ========
</TABLE>

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

                                       3
<PAGE>
 
                            WILD OATS MARKETS, INC.
                     CONSOLIDATED STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER-SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                            APRIL 3,        MARCH 28
                                                              1999            1998
<S>                                                         <C>             <C>
Sales                                                            $122,508    $91,603
Cost of goods sold and occupancy costs                             84,858     63,124
                                                                 --------    ------- 
  Gross profit                                                     37,650     28,479
Operating expenses:
  Direct store expenses                                            27,107     20,228
  Selling, general and administrative expenses                      4,378      3,633
  Pre-opening expenses                                                663        548
  Non-recurring expenses                                           10,894
                                                                 --------    ------- 
     Income (loss) from operations                                 (5,392)     4,070
  Interest expense (income), net                                       90       (349)
                                                                 --------    -------
     Income (loss) before income taxes                             (5,482)     4,419
  Income tax expense (benefit)                                     (2,465)     1,715
                                                                 --------    -------
Net income (loss) before cumulative effect of
  change in accounting principle                                   (3,017)     2,704
                                                                 --------    -------
Cumulative effect of change in accounting
  principle, net of tax                                               281
                                                                 --------    ------- 
 
Net income (loss)                                                  (3,298)     2,704
                                                                 --------    -------
 
Other comprehensive income:
Foreign currency translation adjustment, net                          165         22
                                                                 --------    -------
 
Comprehensive income (loss)                                      $ (3,133)   $ 2,726
                                                                 ========    =======
 
Basic net income (loss) per common share                           $(0.25)     $0.21
                                                                 ========    =======
 
Diluted net income (loss) per common share                         $(0.25)     $0.20
                                                                 ========    =======
 
Average common shares outstanding                                  13,091     12,770
Dilutive effect of stock options                                                 544
                                                                 --------    ------- 
Average common shares outstanding assuming dilution                13,091     13,314
                                                                 ========    =======
</TABLE>

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

                                       4
<PAGE>
 
                            WILD OATS MARKETS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                            APRIL 3,        MARCH 28,
                                                              1999             1998
<S>                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                            $ (3,298)       $  2,704
Adjustments to reconcile net                                             
  income (loss) to net cash provided                                     
  by operating activities:                                               
  Depreciation and amortization                                 4,047           2,771
  Non-recurring expenses                                       10,794    
  Loss (gain) on disposal of property and equipment                14              (5)
  Deferred tax provision (benefit)                               (800)             34
  Change in assets and liabilities:                                      
     Inventories                                               (1,298)           (856)
     Receivables and other assets                                 652             (88)
     Accounts payable                                          (1,759)            348
     Accrued liabilities                                         (820)          2,032
                                                             --------        --------
       Net cash provided by operating activities                7,532           6,940
                                                             --------        --------
                                                                         
CASH FLOWS FROM INVESTING ACTIVITIES                                     
Capital expenditures                                          (10,802)        (12,132)
Payment for purchase of acquired                                         
  entities, net of cash acquired                              (18,467)         (2,122)
Proceeds from sales of equipment                                                  108
                                                             --------        --------
  Net cash used by investing activities                       (29,269)        (14,146)
                                                             --------        --------
                                                                         
CASH FLOWS FROM FINANCING ACTIVITIES                                     
Net borrowings under line-of-credit agreement                  22,300    
Repayment of short-term debt                                   (3,150)             (2)
Proceeds from issuance of common stock                            450             867
                                                             --------        --------
  Net cash provided by financing activities                    19,600             865
                                                             --------        --------
                                                                         
Effect of exchange rate changes on cash                           (52)             22
                                                             --------        --------
Net decrease in cash and cash equivalents                      (2,189)         (6,319)
Cash and cash equivalents at beginning of period               11,255          46,686
                                                             --------        --------
Cash and cash equivalents at end of period                   $  9,066        $ 40,367
                                                             ========        ========
                                                                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                        
  Cash paid for interest                                     $    158        $      3
                                                             ========        ======== 
  Cash paid for income taxes                                 $    157        $    513
                                                             ========        ========
</TABLE> 

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

                                       5
<PAGE>
 
                            WILD OATS MARKETS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                        
1.   ACCOUNTING POLICIES

     The consolidated balance sheet as of April 3, 1999, the consolidated
     statement of operations for the three months ended April 3, 1999 and March
     28, 1998, as well as the consolidated statement of cash flows for the three
     months ended April 3, 1999 and March 28, 1998 have been prepared without an
     audit. In the opinion of management, all adjustments, consisting only of
     normal, recurring adjustments necessary for a fair presentation 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.  It is suggested that these
     consolidated financial statements be read in conjunction with financial
     statements and notes thereto included in the Company's 1998 Annual Report
     to Stockholders.  The results of operations for interim periods presented
     are not necessarily indicative of the operating results for the full year.

2.   NEW ACCOUNTING PRONOUNCEMENTS

     In March 1998, the American Institute of Certified Public Accountants
     ("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the
     Costs of Computer Software Developed or Obtained for Internal Use.  SOP 98-
     1, which is effective for transactions in fiscal years beginning after
     December 15, 1998, provides guidance on accounting for the costs of
     computer software developed or obtained for internal use.  The Company
     adopted SOP 98-1 in fiscal 1999 with no material effect on its reported
     financial results.

     In April 1998, the AICPA issued SOP 98-5, Accounting for the Costs of 
     Start-Up Activities. SOP 98-5 provides guidance on how entities should
     account for pre-opening costs, pre-operating costs, organization costs and
     start-up costs. SOP 98-5 requires that the costs of start-up activities be
     expensed as incurred. SOP 98-5 is effective for fiscal years beginning
     after December 15, 1998, and the initial application should be reported as
     a cumulative effect of a change in accounting principle. The Company
     adopted SOP 98-5 in fiscal 1999 and recorded approximately $281,000 as a
     cumulative effect of a change in accounting principle, net of taxes, during
     the first quarter of 1999. The Company expects SOP 98-5 to have no material
     effect on its ongoing results of operations.

     In June 1998, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards ("FAS") No. 133, Accounting for Derivative
     Instruments and Hedging Activities. FAS No. 133, which is effective for
     fiscal years beginning after June 15, 1999, requires all derivatives to be
     recognized in the balance sheet as either assets or liabilities and
     measured at fair value. In addition, all hedging relationships must be
     reassessed and documented pursuant to the provisions of FAS No. 133. The
     Company will adopt FAS No. 133 for the 2000 fiscal year, but does not
     expect such adoption to materially affect its financial statement
     presentation due to the Company's limited use of such instruments.

3.   BUSINESS COMBINATIONS

     On February 1, 1999, the Company acquired the operations of three existing
     natural foods supermarkets in Tucson, Arizona. The purchase price for this
     acquisition aggregated $18.4 million in cash. The acquisition was accounted
     for using the purchase method, and the excess of cost over the fair value
     of the assets acquired of $16.8 million was allocated to goodwill, which is
     being amortized on a straight-line basis over 40 years.

4.   EARNINGS PER SHARE

     Earnings per share are calculated in accordance with the provisions of FAS
     No. 128, Earnings Per Share. FAS 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).

5.   NON-RECURRING EXPENSES

     During the three months ended April 3, 1999, the Company's management made
     certain decisions relating to the Company's operations and selected store
     closures, which resulted in approximately $10.9 million of non-recurring
     expenses being recorded. These decisions included (1) a change in the
     Company's strategic direction with respect to its two "Farm to Market"
     stores located in Buffalo Grove, Illinois, and Tempe, Arizona ($4.5
     million), and (2) a decision by the Company's management to allocate
     corporate resources to servicing new and existing stores, rather than
     closed sites ($6.4 million). Components of the non-recurring charge consist
     primarily of non-cancelable lease obligations through the year 2000 ($1.2
     million) and abandonment of fixed and intangible assets ($9.7 million).

6.   SUBSEQUENT EVENTS

     Subsequent to April 3, 1999, the Company acquired the operations of three
     existing natural foods markets in Westport and Hartford, Connecticut, and
     Melbourne, Florida, in exchange for $6.5 million in cash.  The acquisition
     was accounted for using 

                                       6
<PAGE>
 
     the purchase method, and the excess of cost over the fair value of the
     assets acquired of $6.1 million was allocated to goodwill, which is being
     amortized on a straight-line basis over 40 years.

     Also subsequent to April 3, 1999, the Company signed an agreement to
     acquire from General Nutrition, Incorporated ("GNI") all of the outstanding
     stock of Nature's Fresh Northwest, Inc. ("Nature's Fresh") in exchange for
     $40.0 million in cash. Included in the liabilities of the acquired company
     is a $17.0 million note payable to GNI. Nature's Fresh currently operates
     six natural foods markets in the Portland, Oregon metropolitan area with
     two new stores and a relocation in development. The completion of the
     acquisition, which is scheduled to close on May 29, 1999, is subject to
     certain conditions to closing, including receipt of clearance for the
     acquisition from the Federal Trade Commission. The acquisition will be
     accounted for using the purchase method, and the excess of cost over the
     fair value of the assets acquired of approximately $30.0 million to $35.0
     million will be allocated to goodwill and amortized on a straight-line
     basis over 40 years.

                                       7
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Form 10-Q contains forward-looking statements within the context of Section
21E of the Securities Exchange Act of 1934, as amended. Each and every forward-
looking statement involves a number of risks and uncertainties, including the
Risk Factors specifically delineated and described in the Company's 1998 Annual
Report to Stockholders and those Risk Factors that have been specifically
expanded or modified below. The actual results that the Company achieves may
differ materially from any forward-looking statements due to such risks and
uncertainties. Words such as "believes", "anticipates", "expects", "intends",
and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements. 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.

Certain of the Risk Factors are hereby restated, modified and expanded in
accordance with the following section references that correlate to the
corresponding sections of the Company's 1998 Annual Report to Stockholders:

UNCERTAIN ABILITY TO EXECUTE GROWTH STRATEGY

The Company's business has grown considerably in size and geographic scope,
increasing from 14 stores in 1994 to its current size of 71 stores in 19 states
and Canada. In the first quarter of 1999, the Company acquired three operating
natural foods stores, opened one new store, and relocated two stores. The
Company's ability to implement its growth strategy depends to a significant
degree upon its ability to open or acquire stores in existing and new markets
and to integrate and operate those stores profitably. While the Company plans to
expand primarily through the opening of new stores, it will continue to pursue
acquisitions of natural foods retailers where attractive opportunities exist.
The Company's growth strategy is dependent upon a number of factors, including
its ability to:

          .  access adequate capital resources;
          .  expand into regions where it has no operating experience;
          .  identify markets that meet its site selection criteria;
          .  locate suitable store sites and negotiate acceptable lease terms;
          .  locate acquisition targets and negotiate acceptable acquisition 
             terms;
          .  hire, train and integrate management and store employees;
          .  recruit, train and retain regional pre-opening and support teams;
          .  complete construction of new stores on time and on budget; and
          .  expand its distribution and other operating systems.

In addition, the Company pursues a strategy of clustering stores in each of its
markets to increase overall sales, achieve operating efficiencies and further
penetrate markets. In the past, when the Company has opened a store in a market
where it had an existing presence, the Company has experienced a decline in the
sales and operating results at certain of its existing stores in these markets.
The opening of competing stores may have a similar adverse effect on the
Company's results of operations. The Company intends to continue to pursue its
store clustering strategy and expects the sales and operating results trends for
other stores in an expanded market to continue to experience temporary declines
related to the clustering of stores. Further, acquisitions involve a number of
additional risks, such as short-term negative effects on the Company's reported
operating results, diversion of management's attention, unanticipated problems
or legal liabilities, and the integration of potentially dissimilar operations,
some or all of which could have a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will achieve its planned expansion in existing
markets, enter new markets, or operate or integrate its existing, newly-opened
or newly-acquired stores profitably. If the Company fails to do so, the
Company's business, results of operations and financial condition will be
materially and adversely affected. In addition, the Company's ability to execute
its growth strategy is partially dependent upon the demographic trends and
market conditions in the natural foods industry. Any change in those trends and
conditions could adversely affect the Company's future growth rate.

FLUCTUATIONS IN FINANCIAL RESULTS

The Company's results of operations may fluctuate significantly from period-to-
period as the result of a variety of factors, including:

          .  the number, timing, mix and cost of store openings, acquisitions,
             relocations, or closings;
          .  the ratio of stores opened to stores acquired;
          .  the opening of stores by the Company or its competitors in markets
             where the Company has existing stores;
          .  comparable store sales results;
          .  the ratio of urban format to supermarket format stores; and
          .  seasonality in sales volume and sales mix in certain geographic 
             regions.

The Company incurs significant pre-opening expenses, and new stores typically
experience an initial period of operating losses. As a result, the opening of a
significant number of stores in a single period will have an adverse effect on
the Company's results of operations. Conversely, delays in opening of planned
new stores may result in revenue shortfalls and may adversely affect results of
operations. The opening of competing stores may have a similar adverse effect on
results of operations. Further, the integration of a significant number of
acquired stores may have an adverse effect on the Company's results of
operations due to duplication of expenses and a higher cost structure in the
acquired stores, financing costs, and goodwill arising from the acquisition. Due
to the foregoing factors, the Company believes that period-to-period comparisons
of its operating results are not necessarily meaningful and that such
comparisons cannot be relied upon as indicators of future financial performance.

                                       8
<PAGE>
 
IMPACT OF THE YEAR 2000 ISSUE

The Company continually evaluates its management information systems and has
made modifications and upgrades where the Company has believed it to be
necessary to comply with Year 2000 concerns. Although the Company believes that
its internal Year 2000 compliance will be adequate and does not anticipate any
disruption in its operations as a result of its information systems not being
Year 2000 compliant, there can be no assurance that such a disruption will not
occur.

If failures of software systems occur within the operations of the Company's
vendors, distributors or financial centers, the failure could affect the
Company's business, financial condition and results of operations. Such failures
could result in the inability to obtain products for the Company's stores and
the inability to process credit card or electronically processed food stamp
payments from customers.

Although the Company has taken significant steps to address possible Year 2000
problems, there can be no assurance that failure of the Company's primary
vendors, distributors or financial centers to timely attain Year 2000 compliance
will not materially adversely affect the Company's results of operations and
financial condition. Year 2000 compliance problems in other areas such as
failures by telephone, mail, data transfer or other utility or general service
providers or government or private entities could also have a material adverse
effect on the Company. The Company is currently formulating contingency plans in
the event these third-party systems are not Year 2000 compliant and anticipates
having such plans completed by the end of the third quarter of 1999.

BACKGROUND

STORE OPENINGS, CLOSINGS, REMODELS, RELOCATIONS AND ACQUISITIONS.  During the
first quarter of 1999, the Company opened one new store in Evanston, Illinois,
and relocated two stores in Tempe, Arizona, and Memphis, Tennessee. The Company
also acquired three operating natural foods stores in Tucson, Arizona, during
the quarter. The Company plans to open seven, acquire up to 11 (inclusive of
those described below), and relocate three additional stores, as well as close
two stores, during the remainder of 1999.

Subsequent to the end of the first quarter of 1999, the Company acquired three
operating natural foods markets in Connecticut and Florida. The Company also
entered into a stock purchase agreement for the acquisition of all of the
outstanding stock of Nature's Fresh Northwest, Inc., a wholly-owned subsidiary
of General Nutrition, Incorporated, that owns six operating natural foods stores
in the Portland, Oregon metropolitan area and also has two new stores and a
relocation in development. The completion of the acquisition, which is currently
scheduled to close on May 29, 1999, is subject to certain conditions to closing,
including receipt of clearance for the acquisition from the Federal Trade
Commission. The Company anticipates that it also may acquire other operating
natural foods grocery stores during the remainder of 1999.

The Company's results of operations have been and will continue to be affected
by, among other things, the number, timing and mix of store openings,
acquisitions or closings. New stores build their sales volumes and refine their
merchandise selection gradually and, as a result, generally have lower gross
margins and higher operating expenses as a percentage of sales than more mature
stores. The Company anticipates that the new stores opened in 1999 will
experience operating losses for the first six to 12 months of operation, in
accordance with historic trends. Further, acquired stores, while generally
profitable as of the acquisition date, generate lower gross margins and store
contribution margins than the Company average, due to their substantially lower
volume purchasing discounts. Over time, typically six months, as the Company
sells through the acquired inventories and implements its volume purchase
discounts, the Company expects that the gross margin and store contribution
margin of the acquired stores will approach the Company average. The Company
anticipates that a high concentration of acquired stores, such as contemplated
by the Nature's Fresh Northwest acquisition, will have a temporary negative
impact on the Company's consolidated results of operations.

The Company is actively upgrading, remodeling or relocating some of its older
stores. Remodels and relocations typically cause short-term disruption in sales
volume and related increases in certain expenses as a percentage of sales, such
as payroll. Remodels on average take between 90 and 120 days to complete. The
Company cannot predict whether sales disruptions and the related impact on
earnings may be greater in time or volume than projected in certain remodeled or
relocated stores. The Company will continue to evaluate the profitability of all
of its stores on an ongoing basis and may, from time to time, make decisions
regarding closures, disposals, relocations or remodels in accordance with such
evaluations. As part of this strategy, the Company relocated two stores in
Tempe, Arizona, and Memphis, Tennessee, during the first quarter and expects to
relocate three additional stores during the remainder of 1999. Further, during
the first quarter of 1999, the Company made a strategic decision to close its
two "Farm to Market" stores, as well as abandon the assets in certain vacant
sites, resulting in a $10.9 million non-recurring charge in the quarter (see
"Notes to Consolidated Financial Statements").

In the fourth quarter of 1998, the Company introduced its Internet shopping
website, "shop.wildoats.com". The Company incurred and will continue to incur
selling, general and administrative costs for the purchase of the software,
advertising and personnel to operate the website. The Company anticipates that
the website will experience small operating losses for at least the first 12
months of operation until consumer awareness, acceptance and use of the website
grow.

STORE FORMAT AND CLUSTERING STRATEGY.  The Company operates two store formats:
supermarket and urban. The supermarket format is generally 15,000 to 35,000
square feet, and typically generates higher sales and store contribution than
the 5,000 to 15,000 square foot urban format stores. The Company's results of
operations have been and will continue to be affected by the mix of supermarket
and urban format stores opened or acquired and whether stores are being opened
in markets where the Company has an existing presence. The Company expects to
focus primarily on opening or acquiring supermarket format stores in the future
but will consider additional urban stores when appropriate opportunities exist.
In addition, the Company pursues a strategy of clustering stores in each of its
markets to increase overall sales, achieve operating efficiencies and further
penetrate markets. The Company believes this strategy has resulted in increased
overall sales in each of its markets. In the past, when the Company has opened a
store in a market where it had an existing presence, the Company has experienced
a decline in the sales and operating results at certain of its existing stores
in that

                                       9
<PAGE>
 
market. However, over time, the Company believes the affected stores generally
will achieve store contribution margins comparable to prior levels on the lower
base of sales. The Company intends to continue to pursue its store clustering
strategy and expects the sales and operating results trends for other stores in
an expanded market to continue to experience temporary declines related to the
clustering of stores.

COMPARABLE STORE SALES RESULTS.  Sales of a store are deemed to be comparable
commencing in the thirteenth full month of operations for new, relocated and
acquired stores. A variety of factors affect the Company's comparable store
sales results, including, among others, the relative proportion of new or
relocated stores to mature stores, the opening of stores by the Company or its
competitors in markets where the Company has existing stores, the timing of
promotional events, the Company's ability to execute its operating strategy
effectively, changes in consumer preferences for natural foods and general
economic conditions. Past increases in comparable store sales may not be
indicative of future performance.

The Company's comparable store sales results have been negatively affected in
the past by planned cannibalization (the loss of sales at an existing store when
the Company opens a new store nearby) resulting from the implementation of the
Company's store cluster strategy. The Company expects that comparable sales
increases will continue to be negatively affected by planned cannibalization
throughout 1999 due to the planned opening of new or relocated stores in several
of the Company's existing markets including Phoenix, Arizona, Las Vegas, Nevada,
Albuquerque, New Mexico and Salt Lake City, Utah. There can be no assurance that
comparable store sales for any particular period will not decrease in the
future.

PRE-OPENING EXPENSES.  Pre-opening expenses include labor, rent, utilities,
supplies and certain other costs incurred prior to a store's opening. Through
1998, pre-opening costs were deferred during the pre-opening period and expensed
in full when the store opened. Pre-opening expenses have averaged approximately
$250,000 to $350,000 per store over the past 18 months, although the amount per
store may vary depending on the store format and whether the store is the first
to be opened in a market, or is part of a cluster of stores in that market.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, Accounting for Costs of Start-Up Activities.
SOP 98-5 requires that pre-opening costs be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998, and the initial
application should be reported as a cumulative effect of a change in accounting
principle. The Company adopted SOP 98-5 in fiscal 1999 and recorded
approximately $281,000 as a cumulative effect of a change in accounting
principle, net of taxes, during the first quarter of 1999.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED 
                                                APRIL 3,    MARCH 28,
                                                  1999        1998
<S>                                             <C>        <C>
Sales                                              100.0%      100.0%
Cost of goods sold and occupancy costs              69.3        68.9
                                                   -----       -----
Gross margin                                        30.7        31.1
Direct store expenses                               22.1        22.1
Selling, general and administrative expenses         3.6         4.0
Pre-opening expenses                                 0.5         0.6
Non-recurring expenses                               8.9
                                                   -----       -----
Income (loss) from operations                       (4.4)        4.4
Interest expense (income), net                       0.1        (0.4)
                                                   -----       -----
Income (loss) before income taxes                   (4.5)        4.8
Income tax expense (benefit)                        (2.0)        1.9
                                                   -----       -----
Net income (loss) before cumulative effect
  of change in accounting principle                 (2.5)        2.9
Cumulative effect of change in accounting
  principle, net of taxes                            0.2
                                                   -----       -----
Net income (loss)                                  (2.7)%        2.9%
                                                   =====       =====
</TABLE>

SALES.  Sales for the three months ended April 3, 1999 increased 33.7% to $122.5
million from $91.6 million for the same period in 1998. The increase is
primarily due to the opening of one new store, the acquisition of three stores,
and the relocation of two stores in the first three months of 1999, as well as
the inclusion of eight stores opened and seven stores acquired during 1998.
Comparable store sales increased 8% for the first quarter of 1999, based on both
new and acquired stores that have been operating longer than 12 months. The
Company expects its comparable store sales increases to be 6% to 8% through the
remainder of 1999. See "Fluctuations in Financial Results".

GROSS PROFIT. Gross profit for the three months ended April 3, 1999 increased
32.2% to $37.7 million from $28.5 million for the same period in 1998. The
increase in gross profit is primarily attributable to the increase in the number
of stores operated by the Company. Gross profit as a percentage of sales for the
three months ended April 3, 1999 decreased to 30.7% from 31.1% for the same
period in 1998. The decrease is primarily attributable to year-end reward
discount coupons issued in early fiscal 1999 in conjunction with the Company's
Wild Shopper Card frequent shopper program (which was discontinued in the first
quarter of 1999) and to lower gross

                                       10
<PAGE>
 
margin performance in the Company's two "Farm to Market" stores (see "Notes to
Consolidated Financial Statements" and "Store Openings, Closings, Remodels,
Relocations and Acquisitions").

DIRECT STORE EXPENSES.  Direct store expenses for the three months ended April
3, 1999 increased 34.0% to $27.1 million from $20.2 million for the same period
in 1998. The increase in direct store expenses is attributable to the increase
in the number of stores operated by the Company. Direct store expenses as a
percentage of sales for the three months ended April 3, 1999 remained the same
as the percentage for the same period in 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses for the three months ended April 3, 1999 increased 20.5%
to $4.4 million from $3.6 million for the same period in 1998. The increase is
the result of additional central and regional support staff and infrastructure
that the Company has added to support its increased number of stores. Selling,
general and administrative expenses as a percentage of sales for the three
months ended April 3, 1999 decreased to 3.6% from 4.0% for the same period in
1998. The decrease is the result of greater leverage of overhead expenses over
higher sales volumes.

PRE-OPENING EXPENSES.  Pre-opening expenses for the three months ended April 3,
1999 increased 21.0% to $663,000 from $548,000 for the same period in 1998. The
increase is attributable to the opening of one new store and two relocated
stores during the first quarter of 1999, as compared to the opening of two new
stores during the same period in 1998. Additionally, in accordance with SOP 98-
5, pre-opening expenses are recognized as incurred during fiscal 1999. Prior to
fiscal 1999, pre-opening expenses were deferred until a store's opening date, at
which time such costs were expensed in full. Pre-opening expenses as a
percentage of sales for the three months ended April 3, 1999 decreased to 0.5%
from 0.6% for the same period in 1998. The decrease is primarily due to the
greater leverage of pre-opening expenses over higher sales volumes.

NON-RECURRING EXPENSES.  During the three months ended April 3, 1999, the
Company's management made certain decisions relating to the Company's operations
and selected store closures, which resulted in approximately $10.9 million of
non-recurring expenses being recorded in the three months ended April 3, 1999.
These decisions included (1) a change in the Company's strategic direction with
respect to its two "Farm to Market" stores located in Buffalo Grove, Illinois,
and Tempe, Arizona ($4.5 million), and (2) a decision by the Company's
management to allocate corporate resources to servicing new and existing stores,
rather than closed sites ($6.4 million). Components of the non-recurring charge
consist primarily of non-cancelable lease obligations through the year 2000
($1.2 million) and abandonment of fixed and intangible assets ($9.7 million).

NET INTEREST EXPENSE (INCOME).  Net interest expense for the three months ended
April 3, 1999 was $90,000 as compared to net interest income of $349,000 for the
same period in 1998. The change is attributable to increased borrowing from the
Company's revolving line of credit to fund new store openings and the
acquisition of three stores in the first quarter of 1999, and to lower levels of
invested cash in the first quarter of 1999.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of capital have been cash flow from operations,
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, acquisitions and purchases of real property.

Net cash provided by operating activities was $7.5 million during the three
months ended April 3, 1999 as compared to $6.9 million during the same period in
1998. Cash provided by operating activities increased during this period
primarily due to increases in net income before depreciation and amortization
expense and loss on disposal of property and equipment. The Company has not
required significant external financing to support inventory requirements at its
existing and new stores because it has been able to rely on vendor financing for
most of the inventory costs, and anticipates that vendor financing will continue
to be available for new store openings.

Net cash used by investing activities was $29.3 million during the three months
ended April 3, 1999 as compared to $14.1 million during the same period in 1998.
The increase is due to the opening of one new store, the acquisition of three
stores, the relocation of two stores, and several store remodels in the first
three months of 1999, as well as the construction costs incurred for 10 new or
relocated stores now under construction which are expected to open in the
remainder of 1999, as compared to two new stores and one acquired store in the
first three months of 1998 and the construction costs incurred for new stores in
development which opened during the remainder of 1998.

Net cash provided by financing activities was $19.6 million during the three
months ended April 3, 1999 as compared to $865,000 during the same period in
1998. The change reflects increased borrowing from the Company's revolving line
of credit and decreased issuance of common stock upon the exercise of employee
stock options during the first three months of 1999, as well as the repayment of
a $3.2 million note payable.

The Company has a revolving line of credit of $80.0 million. The facility has a
three-year term and bears interest, at the Company's option, at the prime rate
or LIBOR plus 0.65%. The line of credit agreement includes certain financial and
other covenants, as well as restrictions on payments of dividends. As of May 12,
1999, there were $29.6 million in borrowings outstanding under this facility.

The Company spent approximately $10.8 million during the first quarter of 1999
and anticipates that it will spend approximately $27.5 million during the
remainder of 1999 for new store construction, purchases of real property and
leasehold interests, development, remodels and maintenance capital expenditures,
exclusive of acquisitions. The Company expects to spend approximately $65.2
million to acquire the operations of existing natural foods or specialty markets
inclusive of the costs of the acquisitions already completed or expected to be
completed during the second quarter of 1999. The Company has entered into a
stock purchase agreement to acquire from General Nutrition, Incorporated the
outstanding stock of Nature's Fresh Northwest, Inc., a corporation with six

                                       11
<PAGE>
 
operating natural foods stores and two stores and one relocation under
development. The purchase price is $40.0 million in cash plus the assumption of
liabilities including a $17.0 million note payable due to the seller. The
acquisition is scheduled to close May 29, 1999, subject to certain conditions to
closing.

The Company's average capital expenditures to open a leased store, including
leasehold improvements, equipment and fixtures, have ranged from approximately
$2.0 million to $3.0 million over the past 24 months, excluding inventory costs
and initial operating losses. The Company expects to increase the average size
of its new stores and increase the number of its new store openings over time,
and is using a greater proportion of new and custom equipment in its stores.
Therefore, the Company anticipates that its average capital expenditures per
store will increase over time by approximately $500,000.

The Company owns two parcels of real property on which it is constructing
new stores or relocating certain existing stores. The Company has constructed
one store planned to open in the second quarter of 1999, and commenced
remodeling of one additional new store scheduled to open in mid-1999.
Construction of stores requires substantially greater cash outlays than the
remodeling of existing buildings (i.e., $3.5 to $9.0 million as compared to $2.0
to $3.0 million). The Company has entered into agreements to sell the real
properties in sale-leaseback transactions. If the Company is not successful in
completing the transactions for the sale and leaseback of the properties
currently owned by the Company, this may result in unplanned, long-term uses of
the Company's cash that otherwise would be available to fund operations.
Additionally, unexpected permitting and construction delays could result in
greater or longer-term cash outlays. Delays in opening new stores also may
result in reductions in forecasted sales revenues from projected levels and
increases in pre-opening costs for any given reporting period.

The cost of initial inventory for a new store has historically been
approximately $500,000; however, the Company relies on vendor financing for most
of this cost. Pre-opening costs currently are approximately $250,000 to $300,000
per store 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 the Company, the size of the store, and the required build-
out at the site. Costs to acquire future stores, if any, are impossible to
predict and could vary materially from the cost to open new stores. There can be
no assurance that actual capital expenditures will not exceed anticipated
levels. The Company believes that cash generated from operations and funds
available under the revolving line of credit will be sufficient to satisfy its
cash requirements, exclusive of additional acquisitions, through 1999.

YEAR 2000 READINESS STATEMENT

INFORMATION TECHNOLOGIES.  As the Year 2000 approaches, the Company recognizes
the need to ensure its operations will not be adversely impacted by Year 2000
software or hardware failures. The Company has determined that all of its major
software and hardware systems at its corporate headquarters are Year 2000
compliant. The Company has substantially completed installing Year 2000
compliant point-of-sale hardware (cash registers and scanners) in its stores. In
1995, the Company began installing new point-of-sale systems to enable its
stores to have scanning capabilities. The Company has not accelerated the
installation schedule for this equipment in response to Year 2000 compliance
issues. All equipment installed since 1995 is Year 2000 compliant. Total
replacement and installation cost to date has been approximately $5.0 million,
with the cost to complete the installation in 1999 in the Company's existing
noncompliant stores estimated at an additional $500,000. This cost may increase
if the Company acquires additional stores with noncompliant point-of-sale
systems. The existing point-of-sale hardware was and is being replaced to
accommodate a merchandise management system that is Year 2000 compliant and that
was previously acquired by the Company for its greater item movement, tracking,
pricing and reporting capabilities. The Company will continue to make certain
investments in its software systems and applications to ensure that they are
Year 2000 compliant. The financial impact of these investments to the Company is
not anticipated to be material in any single year.

VENDORS, SUPPLIERS AND SERVICE PROVIDERS.  The Company also is in the process of
verifying whether its major suppliers, service providers, and financial
institutions are Year 2000 compliant. Many of the Company's product vendors are
smaller businesses that have not considered the impact of Year 2000
noncompliance and so are taking no steps to ensure compliance. To the extent
that product vendors' manufacturing or distribution systems fail as a result of
Year 2000 noncompliance, certain products carried by the Company's stores could
become unavailable, resulting in decreases in operating revenues, although in
many circumstances, alternative local vendors' products may be available. The
Company is currently requesting Year 2000 compliance statements from its major
vendors to determine whether such vendors' distribution of product may be
interrupted as a result of Year 2000 compliance problems. The Company will,
based on the responses received, formulate an alternative action plan to ensure
minimal impact on the available supply of products in its stores. One of the
Company's largest distributors recently provided information to its customers
concerning its own Year 2000 compliance. Currently this distributor has upgraded
or replaced the majority of its technology infrastructure and devices that had
embedded computer chips with compliant systems and devices. Successful testing
has been done on all of the systems and devices, and the distributor believes
that its current schedule of being Year 2000 compliant by July 1999 will be
successfully met. At this time, the Company cannot evaluate the magnitude of the
impact that a failure by the distributor to successfully install compliant
systems could have on the Company's operations. A failure in the distributor's
warehouse facilities could affect the Company's ability to stock product in
certain of its stores, resulting in lower sales revenues in those stores. The
Company's stores' operations could be materially adversely affected if utilities
are disrupted. At this time the Company is in the process of developing
contingency plans to address product or utility disruptions.

If the Company's financial institutions are not Year 2000 compliant, a failure
in their operating system could result in a temporary inability by the Company
to access necessary cash resources required for operations; however, normal
store operations will generate sufficient revenues to cover daily operating
needs. The Company's credit card processor has confirmed to the Company that it
has adapted its systems to accept credit cards issued with expiration dates of
2000 and beyond and has also completed implementation of the phases of its
compliance program in accordance with guidelines of the Federal Financial
Institutions Examination Council.

                                       12
<PAGE>
 
MECHANICAL SYSTEMS.  The Company has commenced review of the various individual
mechanical systems, such as HVAC, refrigeration and security systems, in its
stores to determine whether any Year 2000 compliance issues exist as to these
systems. The Company has contacted the suppliers of certain store systems with
embedded chips where Year 2000 compliance may be an issue to obtain confirmation
of compliance or instructions for reprogramming in the event of a compliance
problem. Responses received to date to a questionnaire sent to service providers
of mechanical systems indicate there will be little impact on store operations
due to Year 2000 noncompliance in mechanical systems. The Company does not
anticipate that any major store mechanical systems will require replacement
because of Year 2000 compliance concerns or that noncompliance of any mechanical
systems will have any material effect on store operations. The dollar value of
perishable goods that could be affected by a failure in refrigerated systems is
small in comparison to the total inventory of any store.

The estimates and conclusions regarding Year 2000 impact contained above are
forward-looking statements based on the Company's best estimates of future
events.  Actual results may differ due to certain risks and uncertainties that
the Company cannot, at this time, predict.

NEW ACCOUNTING PRONOUNCEMENTS

See disclosures in Note 2 of the "Notes to Consolidated Financial Statements".

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

                                       13
<PAGE>
 
PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Alfalfa's Canada, Inc., the Company's Canadian subsidiary, is a defendant in a
suit brought in the Supreme Court of British Columbia, by one of its
distributors, Waysafer Wholefoods Limited and one of its principals, seeking
monetary damages for breach of contract and injunctive relief to enforce a
buying agreement for the three Canadian stores entered into by a predecessor of
Alfalfa's Canada, Inc. The suit was filed in September 1996. The Company does
not believe its potential exposure in connection with the suit to be material.
There are no other material pending legal proceedings to which the Company or
its subsidiaries are a party. From time to time, the Company is involved in
lawsuits that the Company considers to be in the normal course of its business.

ITEM 2.  CHANGES IN SECURITIES

Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.  OTHER INFORMATION

Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

              EXHIBIT
              NUMBER            DESCRIPTION OF DOCUMENT
              ------            -----------------------

              3(i).1.(a)**      Amended and Restated Certificate of
                                Incorporation of Registrant.(1)

              3(i).1.(b)**      Certificate of Correction to Amended and
                                Restated Certificate of Incorporation of the
                                Registrant.(1)

              3(i).1.(c)+       Certificate of Designations of Series A Junior
                                Participating Preferred Stock of Registrant

              3(ii).1**         Amended and Restated By-Laws of Registrant.(1)

              4.1**             Reference is made to Exhibits 3(i).1 through
                                3(ii).1.(1)

              4.2**             Rights Agreement dated as of May 22, 1998
                                between Registrant and Norwest Bank Minnesota
                                N.A.(2)

              10.1**            Revolving Loan Agreement dated as of March 2,
                                1999 among Wild Oats Markets, Inc., the Lenders
                                Named Herein and Wells Fargo Bank, National
                                Association, as Administrative Agent.(3)

              27.1+             Financial Data Schedule.
________________________________

**   Previously filed.
+    Included herewith.

(1)  Incorporated by reference to the Registrant's Annual Report on Form 10-K
     for the year ended December 28, 1996 (File Number 0-21577).
(2)  Incorporated by reference to the Registrant's Registration Statement on
     Form 8-A dated May 21, 1998.
(3)  Incorporated by reference to the Registrant's Annual Report on Form 10-K
     for the year ended January 2, 1999 (File Number 0-21577).

     (b)  Reports on Form 8-K.

     The Company did not file a Form 8-K during the three-month period ended
     April 3, 1999.

                                       14
<PAGE>
 
                                   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 12th day of May 1999.

                                WILD OATS MARKETS, INC.


                                By  /s/  Mary Beth Lewis
                                  ----------------------
                                         Mary Beth Lewis
                                         Executive Officer, Vice President of
                                         Finance, Treasurer and Chief Financial
                                         Officer
                                         (Principal Financial and Accounting
                                         Officer)

                                       15