J.C. Penney Co. Inc. yesterday reported a 68.8 percent drop in second-quarter profits as "the adverse effects of high inflation and the country's economic condition" sharply slowed buying at the nation's third-largest general retail chain.

Penney said it earned $5 million (7 cents a share) in the fiscal quarter ended July 26, down from $16 million (24 cents) a year earlier. As reported earlier, second-quarter sales rose a slim 1.3 percent to $2.51 billion from $2.48 billion.

In its first half, Penney earned $19 million (28 cents), down 62.7 percent from $51 million (75 cents) a year earlier. Sales gained 1 percent to $4.9 billion from $4.8 billion.

The earnings drop had been expected by Penney executives and analysts on Wall Street. Last week, the chain said July sales were only 1 percent ahead of year-ago levels due to "cautious spending by consumers."

Penney said profit margins declined in the first half "due to increased promotional activity, while sales gains were insufficient to provide the leverage needed to offset moderate increases" in operating expenses.

For the rest of 1980, operating results "will continue to be affected adversely by inflation and recessionary forces," Penney said.

But the chain said, despite the slow sales, its stores by the end of the second quarter still were keeping their inventories 8.1 percent below those of a year earlier.

Penney operated 2,148 retail stores at the end of July, down from 2,153 a year earlier. The chain's sales rank it third among general retailers behind Sears, Roebuck & Co. and K mart Corp.