The Montreal-based maker of Mega Bloks and other children's toys, games, puzzles, arts and crafts and stationery products lost US$8.5 million or 52 cents per share in the period.
That compared with a net loss of US$9.3 million or 57 cents in the first three months of 2011 period.
Reporting in U.S. dollars, sales revenue was $58.2 million, up from $51 million.
"Our first-quarter results show good sales growth, particularly in North America, and our key profitability metrics have improved compared to last year," stated president and CEO Marc Bertrand.
"Our top priority for the rest of the year is to capitalize on the strong momentum we have built in our brands."
Mega Brands (TSX:MB) was expected to lose 61 cents per share on $52 million of revenues.
Toy sales increased 10 per cent, driven by higher product shipments in the preschool and boys construction categories.
Sales of stationery and activities products grew 26 per cent, marking the fourth consecutive quarter of year-over-year growth.
"The increased revenue was actually quite impressive, especially the significant rebound in the stationery and activities business, which had previously been a drag on profits," Versant Partners analyst Neil Linsdell wrote in an email.
"With the money that they've been spending on new equipment and production line improvements, I think we'll continue to see margin improvement."
He said the biggest driver to future sales will be new licences that were recently signed, especially Barbie, Hot Wheels, Warcraft, StarCraft and products for the new Spiderman movie and latest instalment of the Halo video game.
Gerrick Johnson of BMO Capital Markets said the results were "encouraging."
Revenues were good but gross margins were a "tad soft." He said it could have been affected by reductions of inventory that boosted sales but at lower margins.
On the Toronto Stock Exchange, Mega Brands shares closed at C$5.85, up 23 cents or more than four per cent in Thursday trading.Suggest a correction