Drug Fair Inc. revealed yesterday that the cost of modernizing its retail stores has caused substantial losses in recent months, but that renovated units are enjoying sales increases that far exceed the other stores'.

President Milton Elsberg also said that two new diversification ventures -- the Wrangler Wranch general clothing stores and Scoops ice cream parlors -- haven't achieved profitability yet.

For the second fiscal quarter ended July 28 Elsberg said Drug Fair had a net loss of $413,043 compared with profits last year of $420,702 (24 cents a share), as sales rose 7;6 percent to $66 million.

Because of the second-quarter loss, six-month results also showed a net loss of $406,952 compared with earnings in the same period last year of $293,076 (17 cents).Sales in recent six months were up 10 percent to $129 million.

Several things combined to bring about this disappointing result for the second quarter . . . increased operating costs, including those for advertising, fuel, utilities and interest," Elsberg said.

Drug Fair launched a program last year to modernize a larger number of stores. "While the costs were substantial, anticipated favorable results will not be fully realized until the program is completed," Elsberg added.

In the meantime, Drug Fair sales increases at renovated units have averaged 9.3 percent compared with gains averaging 4.1 percent at stores not yet remodeled. To date, 60 stores have been transformed. A slower pace of remodeling in the future will slice spending for this program, Elsberg said.

The Drug Fair chief executive forecast that the retail chain will return to profitability in the current six months, based on tighter expense controls possible with the renovated units. The company's directors also approved a cash dividend of 10 cents a share payable Nov. 30 to owners of record Nov. 7.

Flow General Inc., a diversified services and manufacturing company based in McLean, has reported record sales and profits for the fiscal year ended June 30.

Earnings jumped 40 percent to $2.25 million ($1.38 a share) compared with $1.61 million ($1.04) the previous year as sales increased 23 percent to $60.2 million.

In the fourth quarter alone, Flow General profits rose 23 percent to $643,000 (39 cents) from $523,000 (34 cents with fewer shares outstanding). Sales gained 26 percent to $17 million.