UPDATE 2-UK's Next upgrades profit forecast on better-than-expected Q3 sales

* Upgrades full-year profit forecast

* Q3 sales rise 2.8%

* Sees weaker final quarter (Adds CEO comment, shares)

LONDON, Oct 28 (Reuters) - British fashion retailer Next upgraded its full-year profit guidance for the third time in as many months on Wednesday after quarterly full-price sales rose by a better-than-expected 2.8%, although it is cautious on Christmas trading.

The company raised its pretax profit guidance by 65 million pounds ($84.7 million) to 365 million pounds, though it expects fourth-quarter sales to be 8% lower than a year ago due to the impact of the pandemic on the high street and pressures on online capacity.

“We think it is unlikely that sales in the fourth quarter will be as strong as the third quarter,” Chief Executive Simon Wolfson said in an interview.

“As we begin to get into Christmas, even in the better case we will begin to run into some capacity constraints, both in retail, where people will avoid very busy shops, and also online, where we may hit capacity constraints in our warehouses.”

The best case scenario was for flat sales in the final quarter, with stock levels limiting any further upside, he said.

Even after the upgrade, profit this year will be half the level of 2019-20.

Shares in Next, which fell to a seven-year low of 33.11 pounds ($43.15) in March, were up 1% at 61.50 pounds in early trading.

The retailer said the biggest risk was whether England, Scotland and Northern Ireland would follow the decision by Wales to shut non-essential retail shops as part of tougher, short-term lockdown measures.

A widespread two-week lockdown would reduce retail full-price sales by about 57 million pounds, it said.

Online sale were strong in the quarter, the company said, showing a rise of 23.1%, offsetting a 17.9% drop in retail.

Home and childrenswear continued to perform well, while demand for men’s and women’s formal and occasion clothing remained weak.

$1 = 0.7673 pounds Reporting by Paul Sandle; Editing by Kate Holton and Mike Harrison