Home goods retailer A.C. Moore Arts & Crafts Inc posted a wider-than-expected third-quarter loss as same-store sales fell and increased promotional activities hurt margins, sending its shares down as much as 18 percent.

Gross margins at the company, which retails arts, crafts and floral merchandise, were also hit by clearance sales and a shift in its product mix to lower margin businesses.

Our direct competitors introduced their seasonal merchandise with very aggressive pricing, and we promoted our assortment at lower margins to remain competitive and protect our sales as much as possible, Chief Marketing and Merchandising Officer David Abelman said on a conference call with analysts.

C.L. King analyst William Armstrong said the company, which plans to open two new stores in the fourth quarter, had to engage in promotional activities to clear all excess merchandise.

Hopefully the company has succeeded in clearing all its merchandise, so they won't need to have that level of markdowns in the future, he said.

The Berlin, New Jersey-based company has seen a drop in demand, especially at its seasonal business, which includes floral and home goods, as cash-strapped consumers cut back on discretionary purchases.

The drop in seasonal sales accounted for more than 40 percent of the overall decline in the company's quarterly same-store sales, which fell 7.7 percent during the quarter.

A.C. Moore reported a quarterly net loss of $12.9 million, or 53 cents per share, compared with a loss of $7.5 million, or 37 cents a share, a year earlier.

Revenue fell 9 percent to $106.1 million, while gross margins slumped 19 percent.

Analysts were expecting a loss of 7 cents per share on revenue of $109.6 million, according to Thomson Reuters I/B/E/S.

The company's shares were trading down 15 percent at $3.70 Friday afternoon on Nasdaq. They touched a low of $3.56 earlier.

(Reporting by Shobhana Chadha in Bangalore, Editing by Ratul Ray Chaudhuri and Aradhana Aravindan)