Half-year pre-tax profits fell 43.1% to £5.3m, and like-for-like sales were down 2.8%, the budget retailer said.

Poundland cited factors such as a drop off in the loom band craze and an early Easter last year for the decline.

But its acquisition of 99p Stores had added "early sales uplifts", said chief executive Jim McCarthy.

However, he said the chain had seen "highly volatile trading conditions so far in the third quarter".

"The quarter's performance therefore depends more than ever upon the last six weeks' trading towards Christmas," he said.

Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers, said that profits had "fallen short of expectations" and that investor confidence in the near term was being tested.

Shares in Poundland fell by 56.6p to 222p in early trade.

'Quieter half'

The drop in profits and sales for the six months to 27 September was not a "major problem," Mr McCarthy told the BBC.

"We flagged that the results for this half this year would be less than last year because last year was an exceptional period where we benefited from... a late Easter that had quite an impact on sales, we had unusually fewer competitor openings, we had soft comparables and we had the one-off loom band craze," he said.

"We are, in fact, where we expected to be at this stage.

"The first half is our quieter half and the most significant contribution comes from the second half. We do operate on smaller margins... and it is about driving volumes."

He added that the majority of Poundland employees would be affected by the introduction of the National Living Wage.

"It does add another £4m or so to the first year's costs," he said.

He said the firm would be "trialling a hybrid self-checkout" and installing LED lighting to reduce electricity costs as part of efforts to counterbalance the impact of the National Living Wage on the business.

Investors 'tested'

Equity analyst Keith Bowman of Hargreaves Lansdown said: "Profits have fallen short of expectations, whilst trading performance at the acquired 99p Stores - hindered by the uncertainty of a competition review - has disappointed."

He said management comments on Poundland business performance had offered "little near term reassurance", and that the company's plans to expand in Ireland and Spain "adds currency risks".

But store numbers are growing, the firm's store growth target had been expanded, and "conversion of the 99p Stores to the Poundland format is being accelerated given the improvement in sales generated".

"In all, despite expected long term growth, investor confidence near term is being further tested," he said.