Aéropostale Inc. should be able to get fresh inventory for the back-to-school selling season.

That’s because the teen retailer and MGF Sourcing, a key supplier, have reached a settlement to their dispute over MGF’s alleged violation of a sourcing agreement. The settlement still needs to be approved by a Manhattan bankruptcy court, which could come on May 23. Aéropostale filed a voluntary Chapter 11 petition for bankruptcy court protection on May 4. Representatives for MGF and Aéropostale confirmed the settlement, although they each declined comment.

In bankruptcy court documents, the retailer’s chief financial officer David J. Dick said MGF and Sycamore Partners, the private equity firm that owns MGF, forced the company into cash-in-advance terms, which caused a cash crunch and the bankruptcy filing. A spokesman for MGF and Sycamore has said MGF exercised its contractual right to impose the stricter payment terms because the retailer’s liquidity fell under a certain level. Having a settlement in place would eliminate much of the acrimony in the case between the parties, although Sycamore still has a stake in the outcome of the bankruptcy — it is Aéropostale’s largest secured creditor.

The actual terms of the agreement won’t be known until they are filed with the court. The Wall Street Journal reported that once the inventory is delivered and payment made, the two will end their 10-year sourcing agreement. That is provided the retailer stays in compliance with its debtor-in-possession financing package.

The teen retailer last week received Manhattan bankruptcy court approval to access up to $100 million in interim financing. The financing is part of a $160 million debtor-in-possession financing facility with Crystal Financial LLC.

Aéropostale plans to restructure operations and emerge from bankruptcy in six months. At the same time it is pursuing a sale process since debtors must explore all options that create the best return to creditors.

The settlement means one less thing for management to deal with, allowing it to focus on the bankruptcy matters and trying to restructure the business. Whether it can is unclear.

Dan Geoghan, a partner at Cole Schotz specializing in bankruptcy and corporate restructuring, observed, “It’s more likely that the company is sold as some form of going concern or is liquidated.”

Geoghan, who is not involved in the case, said it is “almost impossible to do a turnaround in anything retail,” noting that restrictions within the bankruptcy process “prevent brick-and-mortar retailers to really reorganize like they used to.”

Aéropostale has already begun store closing sales for 113 U.S. locations, and all 41 stores in Canada. B. Riley Financial’s Great American Group and Tiger Capital Group are handling the store closing sales in the U.S., which began on May 7. Once the closures are complete, the company would still operate 626 stores in 50 states and Puerto Rico under the Aéropostale nameplate, as well as 25 P.S. stores in 12 states. Also in operation since November 2012 is the Gojane.com business, an online women’s fashion footwear and apparel e-tailer.

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