Late Wednesday Montreal-based Top 40 supplier Gildan (asi/56842) reported a 3.6% decline in first quarter sales and a nearly 67% drop in Q1 net earnings compared to the same quarter the prior year. The liquidation of Top 40 supplier Heritage Sportswear (asi/60582), a Gildan wholesaler, played a key role in the year-over-year earnings deterioration.

Gildan’s net sales for Q1 2019 tallied $623.9 million. Net earnings topped out at $22.7 million, down from $67.9 million during 2018’s first quarter. Basic earnings per share (EPS) slipped to $0.11, down from the previous year’s $0.31. Meanwhile, adjusted diluted EPS eroded 53% to $0.16. Adjusted EBITDA tumbled 33% to $83.4 million.

A 4.1% decline in activewear sales and a 1.8% slip in the hosiery and underwear category drove the overall sales retreat. “As expected, the decline in activewear, where we generated $493.6 million in sales for the quarter, was primarily due to lower levels of distributor restocking of imprintables compared to the level of restocking that occurred in the first quarter last year in advance of the price increase implemented in March 2018,” Gildan said in a statement.

The earnings free fall resulted, in significant part, from a $0.12 per share trade accounts receivable impairment charge that was primarily a consequence of the currently ongoing sell-off of Heritage Sportswear’s assets. Gildan recorded an impairment of trade accounts receivable of $24.4 million, of which $21.7 million was tied to the Heritage situation; $2.5 million was a consequence of the bankruptcy of Payless ShoeSource. Higher raw material costs and the lower levels of distributor restocking also contributed to the fall back.

For the year, Gildan projects that the anticipated liquidation of Heritage will result in a drag on earnings too, with GAAP diluted EPS forecast to be from $1.75 to $1.85, compared to an earlier forecast of $1.80 to $1.90. Adjusted diluted EPS is expected to lie along the span of $1.90 to $2.00, compared to a previous guidance of $2.00 to $2.10. Annual sales growth should fall in the mid single-digit range, the company said.

Gildan also now expects restructuring and acquisition-related costs for the year to be $30 million, up from an earlier forecast of $20 million.

As part of the Q1 announcement, Gildan said that in April it completed the purchase of land in Bangladesh where it plans build two large textile facilities and related sewing operations. “Once fully operational, this complex is expected to provide capacity to service over $500 million in sales,” Gildan said. Production at the first facility is expected to start in the second half of 2021.

With estimated North American promotional product revenue of $540 million, Gildan ranked fourth on Counselor’s latest list of the largest suppliers in the industry. The new list debuts in July.