Shares in Poundland, which listed in March last year at 300 pence and purchased rival 99p Stores for 55 million pounds ($84 million) in September, fell up to 23 percent on Thursday.

With recession-era shopping habits entrenched, discount retailers in general merchandise and food, have won market share from Britain's supermarkets. But Poundland differs from its rivals because it sells everything for a pound.

“Sales comparables in the second half are softer and our Christmas range is our best ever. However, we have seen highly volatile trading conditions so far in the third quarter," Chief Executive Jim McCarthy said.

"It is a shape that we haven’t seen before," the CEO told reporters, noting that other retailers were experiencing similar patterns.

Separately on Thursday official data showed British retail sales fell more than expected last month after surging in September, hurt by the biggest drop in food store sales since May 2014.

Investec analyst Kate Calvert said Poundland's current trading was clearly weaker than expected. "Question marks over the sustainability of a fixed price model and the underlying Poundland estate are likely to remain," she said.

McCarthy said he was hopeful trading would normalise after "Black Friday" on Nov. 27, when British retailers cut prices to try to drive sales ahead of Christmas.

He attributed the first half profit fall, already flagged in June, to 55 stores openings in Britain and Ireland compared to 34 in the corresponding period last year, and tough comparative sales numbers due to a late Easter and the loom bands craze.

While inflation can challenge the Poundland business model, McCarthy has said it is a myth the company cannot keep selling product for one pound, something it has done for 25 years. He believes the single price model has longevity, pointing to the success of Dollar Tree in the U.S. and Daiso in Japan, which have traded for 62 and 43 years respectively.

Another misconception, he reckons, is that as the economy continues to recover customers will shop elsewhere, noting nearly a quarter of Poundland's UK customers are drawn from the more affluent "AB" demographic.

Poundland made a profit before tax and one-off items of 9.3 million pounds in the six months to Sept. 27. Total sales increased 6.2 percent to 561.1 million pounds but were down 2.8 percent at stores open over a year.

McCarthy expects analysts' average profit forecast for the full 2015-16 year to edge down from 46.5 million pounds prior to Thursday's update to reflect recent moves in the euro.

The 99p Stores deal added 252 stores to about 600 Poundland stores in the UK and nearly 60 shops in Ireland and Spain that trade as Dealz.

McCarthy said it would add at least 25 million pounds to core earnings. The vast majority of the 99p Stores estate would be converted to the Poundland format by April 2016.

Poundland increased its UK and Ireland store target from 1,070 to 1,400.

Poundland shares were down 47.7 pence at 229.8 pence by 11.10 GMT.

(Editing by Paul Sandle and Jane Merriman)

By James Davey