JD Wetherspoon's big gamble of slashing the price of a pint to less than £1 is paying off, but the credit crunch has forced the discount pubs chain to axe the dividend and cut back drastically on expansion plans.

Wetherspoon raised a cheer with drinkers but caused a huge storm with the health lobby by cutting prices at the beer pump at the turn of the year, a move that saw its 99p Greene King IPA at the top of news bulletins — alongside images of drunken fighting yobs in provincial town squares.

However, the trick seems to have worked at the till. Wetherspoon today announced like-for-like sales in January so far up 6.4%.For the six weeks of the Christmas period from 1 December to 11 January, sales were up 3.7%.

That helped sales for the second quarter to 25 January to rise 2.6%, trouncing the 1.5% recorded in the first quarter up to the end of October.

It is not all good news, however. The comparatives are the particularly poor figures reported for Christmas 2007, the first winter of the nationwide smoking ban when Wetherspoon like-for-likes slumped 3.2%.

The company's profit margins have been dragged down, and are now nearer 9% than the 10%-plus of 12 months ago.

“What we have seen with our pricing even sharper than usual is that customers are definitely becoming more discerning,” said chairman and founder Tim Martin.

“In the good times, perhaps customers do not weigh things up as much. But those people who enjoy a good pint or cup of Lavazza coffee are comparing prices a lot more.”

But if the customers are coming in through the door, Martin's bigger headache is money going out of the business. A $140 million (£99 million) US bond issue is up for redemption in September.

“In normal conditions, a re-financing on attractive terms could be relied on,” said Martin. “These are not normal times.”

Instead, Martin is having to hoard cash in a bid to pay down the debt. He has ordered the axeing of the upcoming interim dividend as well as the shareholder payout for the full year. Those payments last year totalled £17 million.

He is also reining back Wetherspoon's plans to spend up to £60 million on converting and opening 30 new premises.

Instead, he is concentrating on taking on failed pubs from bankrupt rivals, and reckons that “between a dozen and two dozen” such acquisitions will cost just £10 million.

With dozens of pubs closing nationally every month, Martin indicated that Wetherspoon could expand to 1000 outlets within three or four years from its current 719 by taking on such existing licensed premises.