Rockville-based Silver Diner Inc. reported yesterday that its second-quarter loss narrowed to $346,672, or 3 cents a share, compared with a net loss of $409,559, or 4 cents a share, in the second quarter of 1997.

The chain of 11 retro-style diners, primarily in the Washington and Baltimore areas, has been operating at a loss since going public in March 1996. Since then, it has opened five restaurants in the Washington area and one in Cherry Hill, N.J.

The company said yesterday that its same-store sales for the quarter that ended July 12 increased for the first time since the first quarter of 1997. Sales at diners open at least 18 months rose 0.7 percent. Net sales rose 9 percent, to $6.56 million, from $6.01 million during the second quarter of 1997, the company said.

The company has boosted sales by investing in a direct-mail discount-coupon program that has brought in new customers and by instituting a program that guarantees food quality and customer service, said Daniel Brannan, vice president of finance.

Those initiatives also drove up operating expenses, which pulled down the restaurant's operating margin and contributed to the net loss, Brannan said. The restaurant's operating margin -- sales minus the cost of goods, labor and operating expenses as a percentage of sales -- decreased to 18.4 percent in the second quarter, from 21 percent.

The company, which is concentrating on reducing corporate overhead costs before opening more diners, does not expect to be profitable until it opens another restaurant, Brannan said.

Plans call for two diners to open in the second half of 1999, and the company is considering expansion in southern Virginia and in Pennsylvania.

Silver Diner shares fell 37.5 cents to $1.25 yesterday.

Pub Date: 8/19/98