Ballooning inventory, in part, has slashed shares of The AZEK Company (AZEK), a manufacturer of outdoor decking, trim, and pergolas, by more than half over the past year. In the year ended September 30, 2022 AZEK’s total inventory spiked 58.7%, the biggest increase in four years.

The increase in finished goods— which represents nearly two thirds of total inventory— was even greater, increasing 62.3% YoY.

The inventory growth significantly outpaces FY22 sales growth of 15% and Cost of Sales (COS) growth of 19.9%.

With inventory ballooning and FY23 sales expected to decline 7.8%, AZEK is trying to change the narrative surrounding its inventory build. In its latest annual report, AZEK inserted a new footnote revealing an unexplained change in how it values inventory:

“During the fourth quarter of fiscal year 2022, the Company updated the process by which it estimates the value of its inventory. This included updating the assumptions that are used in determining and treating certain capitalized costs, primarily by incorporating the impacts of changes in the amount of recycled content introduced into the Company’s products since its last standard costing revaluation.”

DuDil has asked AZEK for additional detail and requested the company quantify the impact the new process had on the value of the company’s inventory. We’ll update subscribers when new information is developed.