Pub chain JD Wetherspoon needs to boost sales by 3% this year just to keep pace with rising costs for food, drink and wages, its management cautioned yesterday.

Pub chain JD Wetherspoon needs to boost sales by 3% this year just to keep pace with rising costs for food, drink and wages, its management cautioned yesterday, after booking an 11.4% fall in pre-tax profit to £55m and freezing its dividend.

The figures for the 12 months to July 27 were not sufficient to dampen enthusiasm for the 699-strong budget bar chain, with its shares rising 2.9% yesterday even as others, including Punch Taverns which was down 2.7% as the market continued to worry about its financial vulnerability, had another difficult day.

Wetherspoon's first full year since England's smoking ban was introduced saw average sales per pub per week, which have growth every year since Wetherspoon was floated in 1992, dip by £200 to £30,100. Like-for-like profit at the chain, which has 45 outlets north of the border, was down 6.6% as less-profit-able food sales soared and the company encouraged customers through its doors with discount leaflets.

The reason for investors' cheer was a report by the company that in the first five weeks of its new financial year, like-for-like sales were up 1.1% and total sales increased by 5.5%, although the company itself was reticent about claiming it was benefiting from drinkers moving from more expensive outlets.

"We have always tried to give good value," chief executive John Hutson said yesterday.

But Mark Burmby, analyst with Blue Oar Securities, said: "Wetherspoon is growing its sales. This is a stock-specific improvement rather than industry-wide and confirms us in our view that JDW is the operator par excellence."

Wetherspoon was also in a cautious mood about the future. Hutson said: "There are significant cost increases coming our way this year and we estimate we will need 3.3% like-for-like (sales increase) to maintain our current trading performance."

He pointed to "£16m of government-induced inflation" through excise duty increases and rises in the national minimum wage as well as rising utility and food prices for the cost rise.

"If we do not achieve this there are other options such as looking at our cost base."

He also defended the company's strategy of sending out discount vouchers to people living near Wetherspoon outlets, at the expense of profit margin. "At the end of the day what we are selling is atmosphere and for that you need people in a pub," he said.

But Wetherspoon management was confident enough to talk about accelerating pub openings to take advantage of a soft property market where it could negotiate better rent deals. It has several openings lined up for Scotland, with branches opening in Irvine this month and Glasgow airport in October, while sites in Musselburgh and Clydebank require licensing permission and others in Edinburgh, Glasgow, Stirling, Stranraer, Hamilton, Dunfermline and Alexandria, West Dunbartonshire also require planning permission.

Hutson said: "On the property front we think the current economic climate might assist us."

Wetherspoon bosses also adopted a cautious stance on the Scottish Government's proposed ban on off-licence sales for under-21s.