Ulta Beauty's (ULTA) limited guidance flow-through from its $0.85 earnings per share beat, along with tougher Q2 to Q4 comparisons, raises questions about the extent of earnings delivery in the second half of 2026, Morgan Stanley said in a report Wednesday.

While the path to multiple expansion looks less clear than it did three months ago, investors will likely focus on whether Ulta can sustain healthy demand while delivering an expected margin recovery, according to the note.

Maintaining a relatively stable two-year stack and incorporating low single-digit March and April trends implies Q2 comparable sales growth of about 2%, versus Street expectations of 3.3%, implying a more modest sales cadence through the rest of the year, the brokerage said.

If expense moderation materializes while comparable sales growth remains at about 2.3%, investors could get visibility into operating income growth in 2027, supporting a stronger earnings profile and multiple expansion, the brokerage added.

Morgan Stanley kept an overweight rating on Ulta Beauty and lowered the price target to $630 from $700.

Shares of Ulta Beauty were down 6% in Wednesday trading.

Price: 465.89, Change: -28.98, Percent Change: -5.86