Profits of Drug Fair Inc. dropped sharply in the latest quarter because economic conditions and tough competition forced the chain to step up its advertising and price-cutting promotions, Chairman Milton Elsburg reported yesterday.

Drug Fair posted earnings of $178,000 (10 cents a share) for the three months ended Oct. 25 compared with a profit of $315,000 (18 cents) from continuing operations in the same period a year ago. Last year Drug Fair also reported a loss of $69,000 (4 cents) from its Scoops ice cream and snack shops, which reduced net earnings to $246,000 (14 cents).

Elsberg said the dip in profits was due to "increased promotional activity and consequent lower realized margins."

"We are determined not to let anyone cut into our share of the market," added Elsberg. The costly sales promotions helped produce a 9.8 percent increase in Drug Fair's sales for the quarter to $69.3 million from $63.1 million.

For the first nine months of its fiscal year, Drug Fair earned $746,000 (44 cents) on sales of $208.9 million. Last year's nine-month sales of $190.9 million produced profits of $169,000 (10 cents) from continuing operations and a net loss of $161,000 after deducting the cost of phasing out the Scoops operations.

Drug Fair's board yesterday declared its regular quarterly dividend of 10 cents a share payable March 2 to stockholders as of Feb. 13.

Penril Corp. of Rockville reported a 30 percent increase in profits for the first quarter of its fiscal year to $522,000 from $401,000 in the same period a year ago. Earnings per share fell to 26 cents from 30 cents, however, because the company issued a large block of new shares last July, increasing the number of outstanding by nearly 50 percent.

Revenues of the suburban electronics manufacturer increased 22 percent from $7.4 million to just over $9 million for the quarter ended Oct. 31.