Grocery chains are outperforming as Trump's reciprocal tariffs ravage the wider market.

With the S&P 500 (^GSPC) heading for its worst week since 2020, investors are looking for safe havens. In the last five days, shares of food-heavy retailers like Walmart (WMT) and Costco (COST) have stayed flat, as the S&P 500 slid 7%. 

UBS analyst Michael Lasser said the duo "have the most resilient earnings outlook" with tariffs expected to eat at company's margins. 

"A greater amount of exposure to consumables products will see more earnings resiliency, especially grocers, given the vast majority of these products are sourced domestically," Lasser said in a note to clients. 

Groceries account for roughly 60% of Walmart's US sales. It says it domestically produces, assembles, or grows two-third of its goods sold in the US. 

In Costco's last earnings call, CEO Ron Vachris said that one-third of its sales in the US are imported from other countries, with less than half of those coming from China, Mexico, and Canada. Most key food imports from Mexico and Canada were exempt from the latest round of tariffs. 

Lasser pointed out Kroger (KR) and Albertson's (ACI) as two other companies that are "going to be viewed more favorably by the market." Wholesale club BJ's (BJ) has a 70% grocery mix and only a 3% exposure to China, per TD Cowen analyst Oliver Chen. Its shares are up 3% this week. 

Wholesale clubs can also fare better in a tariff environment due to the buffer they get from membership revenue, Chen wrote in a note to clients.    

Though shares of the five aforementioned grocers slid on Friday morning, all have dropped less than S&P 500's near 5% decline on the day.

Size will play to Walmart and Costco's advantage. 

"Scale really does come into play here in terms of who's going to win in this value orientation ... There's more of those stores. They're closer to more Americans," PwC US consumer markets' Ali Furman said.

The volume of their sales gives them leverage to negotiate with suppliers, which could widen their price gaps from competitors. 

"As a general rule, and we've seen this across the board, suppliers will do what Walmart asks ... they can't afford not to. They can take a harder stance with smaller customers," said PwC US managing director of customs and international trade, Maytee Pereira. 

Retailers are now "dealing with the initial shock of of the magnitude of the tariffs" and going back to the supply chain to negotiate with vendors to share some of the costs, Pereira said. But their success will depend on their relationship with the supplier, the supplier's bandwidth, among other factors. 

"For example, in China, there's likely a greater aptitude to absorb some of the tariff," she added. 

Dollar General's (DG) stock has jumped 10% in the past five days. About 80% of its sales are food items, most of which are nonperishable items made in the US, like canned soups, beans, and chips, Morningstar analyst Noah Rohr told Yahoo Finance last month.

But retailers with higher mix of discretionary items and general merchandise will be hit, especially if shoppers tighten their belts. Dollar Tree (DLTR) shares have dropped 3% this week; direct imports make up 41% to 43% of its total retail value purchases. China supplies the majority of those imports, per a company filing.

Target (TGT) "stands out with ~50% of merchandise sourced from overseas, of which ~30% comes from China and we estimate the majority of the remaining ~20% from countries in Asia," said Morgan Stanley in a note to clients. 

Chen said his "least favorable stock themes at the moment" include exposure to middle and lower income like Kohl's (KSS), apparel and department stores like Macy's (M), American Eagle (AEO), and substantial China exposure like e.l.f. Beauty (ELF) and Tapestry (TPR). 

Tariff negotiations are likely to happen over the next few weeks with countries like Vietnam, but that doesn't mean the fortunes of retailers will all change, Deutsche Bank analyst Krisztina Katai told clients.

"Even if countries negotiate, retail will see a net negative impact, in our view. This does not even factor in further deterioration in US consumer sentiment and therefore spending, which is not only putting first quarter (many retailers assumed an improvement from February) but also second quarter and second half top-line guidance at risk." 

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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