Drug Fair Inc. reported yesterday a sharp decline in profits for an abbreviated fiscal year ended Jan. 21 -- which included only 211 days because of a change in accounting periods.

Although sales for the period from last July 1 through Jan. 21 rose more than 7 percent to $152.4 million, earnings decreased 38 percent to $1 million (61 cents a share) from $1.6 million (93 cents) in the prior comparable period, which had 215 days.

"With the change in accounting periods and the disparity in the number of days involved, it is difficult to make a true comparison," said President Milton Elsberg.

Elsberg also emphasized yesterday that the retail drug chain's current program to refurbish stores, retrain employes and tighten management systems -- under the name "operation excellence" -- is expensive and that "a short-term impact on earnings is inevitable."

The investment must be made, however, "if we are to continue to grow in the most competitive retail drug market in the nation," he added. National retail figures show that the Washington area ranks first in drug store sales per capita.

"What we predicted last year has evidently come to pass. The immediate impact on our earnings did, in fact, occur while our sales improved," Elsberg noted yesterday. During the abbreviated fiscal year, 14 stores were remodeled and 6 opened, bringing the chain's total to 173.

Directors voted yesterday to pay a regular cash dividend of 10 cents a share on May 31 to owners of record May 10.