Northern Foods, the maker of Fox biscuits and Goodfella's pizza, has today reported a fall in like-for-like sales although added it was trading in line with hopes for the thirteen weeks to 3 July 2010. The 1.6 pct decline came despite overall retail sales in UK reporting a two month boost due to sunny weather boosting food.

"We expect to see continued challenging trading conditions. We are focused on a range of initiatives to enhance the competitive position of the Group and to drive growth, with increased investment in brands, talent and technology in the first half year. With a strong financial position, Northern Foods remains well positioned going forward." Said Stefan Barden, Chief Executive of Northern Foods.

The food manufacturer, reported the loss after cancelling some poorly performing contracts and reduced promotional spending. Bakery sales were down 5.6 pct on a like-for-like basis whilst chilled foods were 14.3 pct higher after sales of sandwiches and salads were boosted instead of biscuits during warmer weather.

"Northern Foods has delivered, from a revenue perspective at least, a surprisingly, indeed worryingly, poor trading update for Q1 (13 weeks to the 3<sup>rd July 2010). It had been flagged up by management that the financial year would see a modest H1 profits decline; the implication being that H2 would be stronger, as investment in its Goodfellas pizza brand in particular was undertaken." said analysts Clive Black and Darren Shirley at Shore Capital.

"We are concerned by the near 25% fall in sales from its Frozen division (c26% volume decline), taking into account the exit of what management calls "marginal business". We believe the exit of the Birds Eye contract contributed c10% of the sales decline, which has now annualised, though with other business exited, and the Goodfellas relaunch a slow-burn, management is not targeting a return to growth until Q4 2010/11 at the earliest."

"The 5.6% fall in Bakery sales year-on-year is also a concern, with volumes declining close to 10%, though we are more comfortable as it reflected lower promotional activity during the World Cup (category promotional activity declined from c50% to c30-35%). With promotions now returning to more normal levels, we would expect a return to sales growth in Bakery through Q2. Importantly, to our minds, margins within Bakery are said to have remained strong."

"We also retain our 4.5p Dividend Per Share forecast, DPS that is critical to the investment proposition as the stock is currently yielding close to 10%" said analysts Clive Black and Darren Shirley who offer a 'hold' rating on the stock, with target price 46p.

Elsewhere, the company also announced its investment in new automated technology would be completed early 2011/2012. The ready-meals business was said to be showing 'steady improvement' whilst net debt was lower year-on-year.

Shares however fell on the news.

FTSE