Despite an 8.9 percent sales increase, profits of Drug Fair Inc. slipped slightly in the second quarter, the Washington drug store chain reported yesterday.

Drug Fair earned $1.07 million (61 cents per share) during the three months ended Dec. 30, compared with $1.96 million (62 cents) in the same period a year earlier. Sales increased to $72.3 million from $66.4 million.

President Milton L. Elsberg blamed the decline in earnings on the cost of remodeling stores and realigning operations as part of the company's "Operation Excellence", and noted that earnings were down much less than in he previous two quarters.

First quarter earnings plummeted from 40 cents per share to 13 cents, pulling down Drug Fair's figures for the first half. For the six months, the chain earned $1.25 million (74 cents), down from $1.79 million ($1.02), while sales increased to $134 million from $123 million.

Ellsberg said the store upgrading program was beginning to produce results. With sales increasing at a rate of 9 percent for the first half, compared with 4.6 percent a year ago.

"Our earnings decline has been reduced to manageable proportions," Elsberg said. "We are hopeful that cost control measures we are undertaking will continue to moderate the necessary investment" in store improvements.