UPDATE 2-Fossil Q1 profit tops Street, ups outlook; shares jump

* Q1 EPS 26 cents, beats est by 10 cents

* Raises FY09 EPS outlook range by 10 cents

* Sees sales decline of 5-8 pct for 2009

* Sees Q2 profit above expectations

* Shares up as much as 20 pct (Adds Q2 outlook, details, share movement)

May 12 (Reuters) - Fossil Inc (FOSL.O) posted a first-quarter profit that exceeded analysts' estimates, helped by tighter expense controls and better inventory management, and raised its outlook for the year, sending the watchmaker's shares up as much 20 percent.

The company also said some of its retail partners are beginning to see signs of stabilization and its own Fossil accessory stores continue to post growth in same-store sales.

For the first quarter, the company, which also sells jewelry, leather goods, belts, sunglasses and apparel, earned $17.3 million, or 26 cents a share, compared with $30.2 million, or 43 cents a share, a year ago.

Net sales fell 9 percent to $323.0 million.

Analysts on average were expecting earnings of 16 cents a share, before special items, on revenue of $323.5 million, according to Reuters Estimates.

The company, which had in February forecast weaker-than-expected first-quarter and full-year results, said administrative expenses in the quarter fell nearly 6 percent to $37.5 million.

Fossil has undertaken several measures to contain costs, including selective layoffs, a hiring freeze, suspension of merit-pay increases and company contributions towards employee retirement plans, and salary reductions for all executive officers and senior vice-presidents.

For 2009, Fossil, known for its namesake watches and Relic handbags, now sees earnings in the range of $1.50 to $1.70 a share, up 10 cents from its prior outlook.

It expects sales for the period to decline 5 percent to 8 percent, compared with its earlier estimate of a fall of 6 percent to 10 percent.

For the second quarter, the company forecast earnings of 18 cents to 20 cents a share, while analysts were expecting a profit of 16 cents a share. It expects sales for the period to decline 8 percent to 10 percent.

Shares of the company were up $2.26 at $22.00 in morning trade Tuesday on Nasdaq. (Reporting by Amitha Rajan in Bangalore; Editing by Himani Sarkar, Vinu Pilakkott)