UPDATE 1-Polaris beats estimates, affirms full-year outlook

* Reports 1st-qtr net of 26 cents a share

* Says gross margins rose thanks to higher selling prices

* Stands by full-year guidance

CHICAGO, April 16 (Reuters) - Polaris Industries Inc (PII.N) reported stronger-than-expected earnings on Thursday and stood by its full-year earnings forecast, saying lower commodity costs and higher selling prices were helping it enjoy wider gross margins despite a downturn in sales.

The company, which makes all-terrain vehicles, snowmobiles and motorcycles, reported a first-quarter net profit of $8.5 million, or 26 cents a share, compared with $19.1 million, or 55 a share, a year earlier.

Sales fell 20 percent to $312 million

The results included an 18 cent a share non-cash impairment charge related to the company's investment in Austria's KTM Power Sports AG.

Stripping out that charge, the company reported a profit off 44 cents a share -- results that Citi analyst Gregory Badishkanian called a "solid EPS beat."

Analysts, on average, expected the Minneapolis-based company to report a profit of 20 cents a share on sales of $299.4 million, according to Reuters Estimates.

(Reporting by James Kelleher)