Staff pay rises ahead of the national living wage drained profits at pub giant JD Wetherspoon.
The half yearly results were announced as chain founder Tim Martin backed Britain leaving the EU.
The firm, whose 954 pubs include several in Tayside and Fife, said pre-tax profits slipped 3.9% to £36 million in the 26 weeks to January 24 after two recent pay increases.
Employees received pay rises in October 2014 and last July, amounting to 13%.
The business employs 37,000 staff.
The UK Government will next month introduce the national living wage, which will lift minimum hourly pay to £7.20 for over 25s and to at least £9 an hour by 2020.
The pub chain said like-for-like sales in the period were 2.9%, while sales at established pubs in the six weeks to March 6 lifted to 3.7%.
Mr Martin said: “Sales comparisons in the second half of the financial year will be slightly more favourable, although further wage increases are due in April.
“The pub and restaurant market is highly competitive, but we are aiming for a reasonable outcome for the financial year.”
Mr Martin also cautioned Chancellor George Osborne against raising taxes in the pub industry ahead of next week’s Budget.
He also came out in favour of Brexit, saying: “All major powers should be permanently retained by national parliaments.
It would soon be time for everyone in the UK to decide on this matter.
He added: “As those Eurovision songsters Bucks Fizz memorably put it, it’s time for making your mind up.”