On Tuesday, Top 40 supplier Gildan (asi/56842) issued a notice to investors saying that Ohio-headquartered Top 40 supplier Heritage Sportswear (asi/60582) is on the brink of being liquidated. The assertion was based on court documents filed in federal court in Georgia that ask a judge to approve a liquidation sale.

Still, sources close to the situation told Counselor that operations are continuing at Heritage and that the apparel provider – the 10^th largest supplier in the promo industry – is not about to be shuttered.

Montreal-based Gildan said that it expects to incur a $19 million to $23 million charge during the first quarter stemming from unpaid bills as a result of Heritage being liquidated. Heritage is one of a number of suppliers that sells Gildan apparel to the promo sector.

Gildan said the charge won’t impact top line revenue, but will reduce diluted earnings per share for the quarter. EPS is expected to drop from the previously anticipated $0.24 to $0.26 to a range of $0.14 to $0.16. For the year, Gildan projects that the anticipated liquidation of Heritage will result in a drag on earnings too, with adjusted diluted EPS now expected to fall along the span of $1.90 to $2.00 compared to a previous guidance of $2.00 to $2.10.

Garry Bell, Gildan’s vice president of corporate marketing and communication, stressed that Gildan’s assessment is based on a Tuesday (March 26) court filing. It indicates that, after attempts to sell Heritage failed, a receiver appointed to administer the Heritage business is seeking approval to conduct an orderly wind down of the Ohio firm’s operations and to liquidate its assets.

“It’s a sad situation,” Bell told Counselor. “As a publicly-traded company, though, we must adhere to our fiduciary responsibility and notify our investors of potential negative impacts.” Bell said Gildan doesn’t anticipate a drop in sales, as it believes other vendors that sell to the imprinted apparel market will pick up the slack. “It’s an efficient business,” he told Counselor.

The March 26 court filing in the U.S. District Court for the Northern District of Georgia, Atlanta Division, states that Heritage Sportswear’s court-appointed receiver Gene R. Kohut, of financial advisory firm Conway MacKenzie, Inc., has entered into an agreement with a third-party company – Hilco Merchant Resources – that specializes in liquidation to sell off Heritage’s assets.

“Since his appointment, the receiver has continued Heritage’s business operations, but given Heritage’s continuing losses, lack of ability to find adequate financing, and lack of a viable way to turnaround or sell its business, the receiver has determined that it is in the best interest of the receivership estate and its creditors to wind down Heritage’s business operations,” the court documents state.

Still, the receiver needs permission from the court to execute the liquidation. The court documents contain language that would effectuate the order, but the documents remained unsigned as of late Wednesday. The order indicates that most of the collateral proceeds from the liquidation would be distributed to the plaintiff – Cadence Bank.

Nonetheless, sources close to the situation, which spoke on condition of anonymity, told Counselor that talk of Heritage’s inevitable demise is premature. Word is that Heritage is in ongoing negotiations with multiple entities about possible investment that would empower the apparel supplier to continue as a viable business. Whether the entities are other promo suppliers, outside-the-industry companies, or private equity firms wasn’t clear.

A source said that Heritage has not entered into the liquidation process and does not have a timeline for doing so. Furthermore, Heritage is continuing to receive and fulfill orders, which includes billing and collecting.

While the conflicting accounts between the court documents and sources close to the matter might obfuscate what the future holds for Heritage, one thing seems clear: The Top 40 firm, which court documents state was around the $150 million revenue mark in 2018, has undoubtedly run into financial difficulties, with working capital an issue. A process aimed at finding investors and/or selling the company has been going on for months, sources indicated.

For 2017, Heritage reported flat industry sales of $141.6 million due to what it characterized as “market conditions.” In 2013, the firm acquired former Top 40 supplier Virginia T’s, but dropped the Virginia T’s branding last year.

Founded in 1982, Heritage employs about 350 people across five locations in Ohio, Virginia, Indiana and Florida, according to court documents. The company, which sells everything from polos and T-shirts, to outerwear, headwear and more, ranks 10^th on Counselor’s latest list of the largest promo suppliers as determined by North American promotional product revenue.

With estimated 2017 North American promotional product revenue of $540 million, Gildan ranks fourth on Counselor’s latest list of the largest suppliers in the industry.